Business Law Law of contract, meaning of contract, agreement, essential elements of a valid contract, classification of contracts, proposal and acceptance, free consent, void agreements. Negotiable instruments act 1881: Nature and Characteristics of Negotiable instruments, Kinds of Negotiable Instruments – Promissory Notes, Bills of Exchange and Cheques. Parties to Negotiable Instruments, Negotiation, Presentment, Discharge and Dishonor of Negotiable Instrument, Law of agency, Bailment & Pledge. Sale of goods act 1930: Definition of Sale, Sale v/s Agreement to Sell, Goods, price and Time, Condition and Warranties, Express and Implied Condition, ―Doctrine of Caveat Emptor‖, Performance of Contract of sale, Right of Unpaid Seller. Intellectual property law, law relating to patents, law relating to copyrights, law relating to trade mark Advice ON BUSINESS LAW can help you to deal with regulations affecting your business/industry, employment law issues and how to handle disputes, employment contract terms for new employees, protecting your intellectual property and copyright and drawing up a standard terms of trade contract. It can also assist with the legalities of a specific contract for a specific piece of work. You can also learn how to protect yourself against bad debts, better understand the legal requirements of your insurance needs and set terms and conditions for the sale of your products or services. advice on a range of issues such as contracts, intellectual property, terms and conditions and employment law What else a solicitor will help with They will act for you in a legal dispute and if you have to go to court. They can also give you advice if you have a website and are unsure about its legal ins and outs. They can also give you advice on financial matters such as how to keep your taxes to a minimum.
The effects of a flawed legal system on the business environment may be found in many areas which are only too familiar to businessmen. Here are some examples of what usually happens in the absence of appropriate and enforced legal rules: " The effects on contracts: Respect for contractual obligations will be left entirely to the good will of the contracting parties, agreements will be binding only to the extent their beneficiaries have effective power to make them so, and resorting to extra-legal means will become an ordinary method of enforcement. * The effect on property rights: Individuals and corporations will tend to acquire only the assets over which they can maintain effective property rights. Many will prefer to liquidate their assets and keep them in the form of deposits or portfolio investments abroad, putting pressure on the value of the local currency. " Effect on corporations: Most companies will take the form of closed corporations where shares are held by reliable friends and relatives, thus barring the formation of large domestic joint-stock companies and depriving ordinary citizens of opportunities to own stock portfolios. " Effect on the banking system: Banks will lend only to those who can offer real assets as collateral, or to those who have effective, namely political, power in the society, thus limiting the growth of the banking sector and of new investment while reinforcing the concentration of wealth. Debt recovery will become a major problem for banks, threatening their very existence. Both the banking system and the capital market will not properly function in the absence of an adequate regulatory framework strictly supervised by efficient agencies. Furthermore, different types of financial mechanisms will emerge, promising quick and lucrative returns, but ending in failures which may affect the economy as a whole. " Effect on the transfer of technology: The inflow of foreign direct investment, which
normally introduces more modern technology, will slow down. Weak protection of intellectual property rights will stifle invention and the development of new ideas.
method of procurement, preferring to deal with familiar and reliable sources. They will also tend to seek favors from public officials through illegal means. " Effect on ongoing legislation and regulation: Weak or ineffective laws usually lead to the enactment of further laws and regulations. An over-regulated economy undermines new investment, increases the cost of existing ones, and leads to the spread of corruption. The multiplication of laws and regulations also reduces their quality and the chances of their enforcement. The absence of judicial review, or its high cost, and delays in the administration of justice add to the negative impact. * Effect on the extent of criminal offenses in the economic sphere: Weak, ineffective, or excessive laws lead to tax evasion, smuggling, and the growth of organized crime. What is Business Law? Businesses interact in many and varied ways. To name just a few types of business transactions, there are contracts, mergers and acquisitions, leasing, etc. How these transactions are carried out is overseen by Business Law. Additionally, how businesses are formed is a large part of Business law. This area of law is very wide-ranging, although it deals primarily with defining the rights and responsibilities of businesses, rather than enforcing these laws. Because of its extensive scope, Business law has spawned a large number of legal practice area subcategories, which include Sales and Secured Transactions, Banking, Landlord-Tenant, Mortgages, Real Estate Transactions, Debtor and Creditor, Bankruptcy, Consumer Credit, Negotiable Instruments, and Contracts. Business law and Commercial law are very closely related, so much so that the terms are often used interchangeably and the legal issues they address frequently overlap. The Uniform
Commercial Code (UCC) is the principal presiding authority over commercial transactions. Business Law Business.gov helps small businesses understand their legal requirements and locate government services from federal, state and local agencies. Business.gov is an official site of the U.S. Small Business Administration. - Definition
Commercial law (sometimes known as business law) is the body of law that governs business and commercial transactions. It is often considered to be a branch of civil law and deals with issues of both private law and public law. Commercial law includes within its compass such titles as principal and agent; carriage by land and sea; merchant shipping; guarantee; marine, fire, life, and accident insurance; bills of exchange and partnership. It can also be understood to regulate corporate contracts, hiring practices, and the manufacture and sales of consumer goods. aws Most aspects of running a business have some legal consequences. Whether your business is just starting up, expanding, or winding down, you must comply with the federal, state, and local laws that govern your business activities. - Employment Law for Businesses The e laws Advisors are interactive e-tools that provide easy-to-understand information about a number of federal employment laws. Each Advisor simulates the interaction you might have with an employment law expert. It asks questions and provides answers based on responses given. - Self-Employment Assistance Self-Employment Assistance offers dislocated workers the opportunity for early reemployment. The program is designed to encourage and enable unemployed workers to
create their own jobs by starting their own small businesses. Under these programs, States can pay a self-employed allowance, instead of regular unemployment insurance benefits, to help unemployed workers while they are establishing businesses and becoming self-employed. Participants receive weekly allowances while they are getting their businesses off the ground.
inesses Broad ranging material on business laws, regulations, structuring, capital, taxes, securities, employment, contracts, labor & more
A corporation is a legal entity created through the laws of its state of incorporation. Individual states have the power to promulgate laws relating to the creation, organization and dissolution of corporations. Many states follow the Model Business Corporation Act.
A partnership is a for-profit business association of two or more persons. Because the business component is defined broadly by state laws and because "persons" can include individuals, groups of individuals, companies, and corporations, partnerships are highly adaptable in form and vary in complexity. Each partner shares directly in the organization's profits and shares control of the business operation. The consequence of this profit sharing is that partners are jointly and independently liable for the partnership's
debts.
The Uniform Commercial Code (UCC or the Code), first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America. The goal of harmonizing state law is important because of the prevalence of commercial transactions that extend beyond one state. For example, goods may be manufactured in State A, warehoused in State B, sold from State C and delivered in State D. The UCC therefore achieved the goal of substantial uniformity in commercial laws and, at the same time, allowed the states the flexibility to meet local circumstances. The UCC deals primarily with transactions involving personal property (movable property), not real property (immovable property). LAW OF CONTRACT: WHAT IS A CONTRACT?
Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. Section 2(e) defines agreement as ―every promise and every set of promises forming consideration for each other.‖ Section 2(b) defines promise in these words: ―When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise.‖ From the above definition of promise, it is obvious that an agreement is an accepted proposal.
The two elements of an agreement are: (i) offer or a proposal (ii) an acceptance of that offer or proposal.
What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy. Thus, a contract consists of two elements: (i) an agreement (ii) legal obligation, i.e., it should be enforceable at law. However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts. Examples (1) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to the restaurant. To his utter surprise A is not there. Or A is there but refuses to entertain B. B has no remedy against A. In case A is present in the restaurant but B fails to turn-up, then A has no remedy against B. (2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A. In the above examples promises are not enforceable at law as there was no intention to create legal obligations. Such agreements are social agreements which do not give rise to legal consequences. This shows that an agreement is a broader term than a contract. And, therefore, a contract is an agreement but an agreement is not necessarily a contract. Object and Scope: The Law of Contract deals with agreements which can be enforced through courts of law. The Law of Contract is the most important part of commercial law because every commercial transaction starts from an agreement between two or more persons. According to Salmond a contract is an ―agreement creating and defining obligations between the parties.‖ According to Sir William Anson, ―A contract is an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others. The object of the Law of Contract is to introduce definiteness in commercial and other transactions. How this is done can be illustrated by an example. X enters into a contract to deliver 10 toWhat agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy. Thus, a contract consists of two elements: (i) an agreement (ii) legal obligation, i.e., it should be enforceable at law. However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts.
Examples (1) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to the restaurant. To his utter surprise A is not there. Or A is there but refuses to entertain B. B has no remedy against A. In case A is present in the restaurant but B fails to turn-up, then A has no remedy against B. (2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A. In the above examples promises are not enforceable at law as there was no intention to create legal obligations. Such agreements are social agreements which do not give rise to legal consequences. This shows that an agreement is a broader term than a contract. And, therefore, a contract is an agreement but an agreement is not necessarily a contract. Object and Scope: The Law of Contract deals with agreements which can be enforced through courts of law. The Law of Contract is the most important part of commercial law because every commercial transaction starts from an agreement between two or more persons. According to Salmond a contract is an ―agreement creating and defining obligations between the parties.‖ According to Sir William Anson, ―A contract is an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others. The object of the Law of Contract is to introduce definiteness in commercial and other transactions. How this is done can be illustrated by an example. X enters into a contract to deliver 10 tons of coal of Y on a certain date. Since such a contract is enforceable by the courts, ns of coal of Y on a certain date. Since such a contract is enforceable by the courts, What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy. Thus, a contract consists of two elements: (i) an agreement (ii) legal obligation, i.e., it should be enforceable at law. However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts. Examples (1) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to the restaurant. To his utter surprise A is not there. Or A is there but refuses to entertain B. B has no remedy against A. In case A is present in the restaurant but B fails to turn-up, then A has no remedy against B. (2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A. In the above examples promises are not enforceable at law as there was no intention to create legal obligations. Such agreements are social agreements which do not give rise to legal consequences. This shows that an agreement is a broader term than a contract. And, therefore, a contract is an agreement but an agreement is not necessarily a contract. Object and Scope: The Law of Contract deals with agreements which can be enforced through courts of law.
The Law of Contract is the most important part of commercial law because every commercial transaction starts from an agreement between two or more persons. According to Salmond a contract is an ―agreement creating and defining obligations between the parties.‖ According to Sir William Anson, ―A contract is an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others. The object of the Law of Contract is to introduce definiteness in commercial and other transactions. How this is done can be illustrated by an example. X enters into a contract to deliver 10 tons of coal of Y on a certain date. Since such a contract is enforceable by the courts, Law of Contracts creates rights in person as distinguished from rights in rem. Rights in rem are generally in regard to some property as for instance to recover land in an action of ejectment. Such rights are available against the whole world. Rights in personam are against or in respect of a specific person and not against the world at large. Examples (1) A owns a plot of land. He has a right to have quiet possession and enjoyment of the same. In other words every member of the public is under obligation not to disturb his quiet possession and enjoyment. This right of A against the whole world is known as right in rem. (2) A is indebted to B for Rs. 100. It is the right of B to recover the amount from A. This right of B against A is known as right in personam. It may be noted that no one else (except B) has a right to recover the amount from A. The law of contracts is concerned with rights in personam only and not with rights in rem. ESSENTIAL ELEMENTS OF A VALID CONTRACT We have seen that the two elements of a contract are: (1) an agreement; (2) legal obligation. Section 10 of the Act provides for some more elements which are essential in order to constitute a valid contract. It reads as follows: ―All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.‖ Thus, the essential elements of a valid contract can be summed up as follows 1. Agreement. 2. Intention to create legal relationship. 3. Free and genuine consent. 4. Parties competent to contract. 5. Lawful consideration. 6. Lawful object. 7. Agreements not declared void or illegal. 8. Certainty of meaning. 9. Possibility of performance. 10. Necessary Legal Formalities. These essential elements are explained briefly. 1. Agreement As already mentioned, to constitute a contract there must be an agreement. An agreement is composed of two elements—offer and acceptance. The party making the offer is known as the offeror, the party to whom the offer is made is known as the offeree. Thus, there are essentially
to be two parties to an agreement. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem. Thus, where ‗A‘ who owns 2 cars x and y wishes to sell car ‗x‘ for Rs. 30,000. ‗B‘, an acquaintance of ‗A‘ does not know that ‗A‘ owns car ‘x’ also. He thinks that ‗A‘ owns only car ‘y’ and is offering to sell the same for the stated price. He gives his acceptance to buy the same. There is no contract because the contracting parties have not agreed on the same thing at the same time, ‗A‘ offering to sell his car ‗x‘ and ‗B‘ agreeing to buy car ‘y’. There is no consensus-ad-idem. 2. Intention to create legal relationship As already mentioned there should be an intention on the part of the parties to the agreement to create a legal relationship. An agreement of a purely social or domestic nature is not a contract. Examples (1) There was an agreement between Rose Company and Crompton Company, where of the former were appointed selling agents in North America for the latter. One of the clauses included in the agreement was: ―This arrangement is not... a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts‖. This agreement was not a legally binding contract as the parties intended not to have legal consequences (2) An agreement contained a clause that it ―shall not give rise to any legal relationships, or be legally enforceable, but binding in honour only‖. The agreement did not give rise to legal relations and, therefore, was not a contract. (3) An aged couple (C and his wife) held out a promise by correspondence to their niece and her husband (Mrs. and Mr. P.) that C would leave them a portion of his estate in his will, if Mrs. and Mr. P would sell their cottage and come to live with the aged couple and to share the household and other expenses. The young couple sold their cottage and started living with the aged couple. But the two couples Subsequently quarreled and the aged couple repudiated the agreement by requiring the young couple to stay somewhere else. The young couple filed a suit against the aged couple for the breach of promise. Held: That there was intention to create legal relations and the young couple could recover damages 3. Free and genuine consent The consent of the parties to the agreement must be free and genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mistake. If the consent is obtained by any of these flaws, then the contract is not valid. 4. Parties competent to contract The parties to a contract should be competent to enter into a contract. According to Section 11, every person is competent to contract if he (i) is of the age of majority, (ii) is of sound mind, and (iii) is not disqualified from contracting by any law to which he is subject. CLASSIFICATION OF CONTRACTS: Contracts may be classified in terms of their (1) validity or enforceability, (2) mode of formation, or (3) performance. 1. Classification according to validity or enforceability Contracts may be classified according to their validity as (i) valid,
(ii) voidable, (iii) void contracts or agreements, (iv) illegal, or (v) unenforceable. A contract to constitute a valid contract must have all the essential elements discussed earlier. If one or more of these elements is/are missing, the contract is voidable, void, illegal or unenforceable. As per Section 2 (i) a voidable contract is one which may be repudiated at the will of one of the parties, but until it is so repudiated it remains valid and binding. It is affected by a flaw (e.g., simple misrepresentation, fraud, coercion, undue influence), and the presence of anyone of these defects enables the party aggrieved to take steps to repudiate the contract. It shows that the consent of the party who has the discretion to repudiate it was not free. An unenforceable contract is neither void nor voidable, but it cannot be enforced in the court because it lacks some item of evidence such as writing, registration or stamping. For instance, an agreement which is required to be stamped will be unenforceable if the same is not stamped at all or is under-stamped. In such a case, if the stamp is required merely for revenue purposes, as in the case of a receipt for payment of cash, the required stamp may be affixed on payment of OFFER/PROPOSAL A proposal is defined as ―when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.‖ [Section 2 (a)]. An offer is synonymous with proposal. The offeror or proposer expresses his willingness ―to do‖ or ―not to do‖ (i.e., abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence. Thus, there may be ―positive‖ or ―negative‖ acts which the proposer is willing to do. Examples (1) A offers to sell his book to B. A is making an offer to do something, i.e., to sell his book. It is a positive act on the part of the proposer. (2) A offers not to file a suit against B, if the latter pays A the amount of Rs. 200 outstanding. Here the act of A is a negative one, i.e., he is offering to abstain from filing a suit. HOW AN OFFER IS MADE? An offer can be made by (a) any act or (b) omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other (Section 3). An offer can be made by an act in the following ways: (a) by words (whether written or oral). The written offer can be made by letters, telegrams, telex messages, advertisements, etc. The oral offer can be made either in person or over telephone. (b) by conduct. The offer may be made by positive acts or signs so that the person acting or making signs means to say or convey. However silence of a party can in no case amount to offer by conduct. An offer can also be made by a party by omission (to do something). This includes such conduct or forbearance on one‘s part that the other person takes it as his willingness or assent. An offer implied from the conduct of the parties or from the circumstances of the case is known as implied offer. Examples (1) A proposes, by letter, to sell a house to B at a certain price. This is an offer by an act by written words (i.e., letter). This is also an express offer.
(2) A proposes, over telephone, to sell a house to B at a certain price. This is an offer by act (by oral words). This is an express offer. (3) A owns a motor boat for taking people from Bombay to Goa. The boat is in the waters at the Gateway of India. This is an offer by conduct to take passengers from Bombay to Goa. He need not speak or call the passengers. The very fact that his motor boat is in the waters near Gateway of India signifies his willingness to do an act with a view to obtaining the assent of the other. This is an example of an implied offer. (4) A offers not to file a suit against B, if the latter pays A the amount of Rs. 200 outstanding. This is an offer by abstinence or omission to do something. Specific and General Offer An offer can be made either: 1. to a definite person or a group of persons, or 2. to the public at large. The first mode of making offer is known as specific offer and the second is known as a general offer. In case of the specific offer, it may be accepted by that person or group of persons to whom the same has been made. The general offer may be accepted by any one by complying with the terms of the offer. The celebrated case of Carlill v. Carbolic Smoke Ball Co., (1813) 1 Q.B. 256 is an excellent example of a general offer and is explained below. Examples (1) A offers to sell his house to B at a certain price. The offer has been made to a definite person, i.e., B. It is only B who can accept it . The general offer creates for the offeror liability in favour of any person who happens to fulfil the conditions of the offer. It is not at all necessary for the offeree to be known to the offeror at the time when the offer is made. He may be a stranger, but by complying with the conditions of the offer, he is deemed to have accepted the offer. Essential requirements of a valid offer An offer must have certain essentials in order to constitute it a valid offer. These are: 1. The offer must be made with a view to obtain acceptance [Section 2(a)]. 2. The offer must be made with the intention of creating legal relations. 3. The terms of offer must be definite, unambiguous and certain or capable of being made certain (Section 29). The terms of the offer must not be loose, vague or ambiguous. Examples (1) A offers to sell to B ―a hundred quintals of oil‖. There is nothing whatever to show what kind of oil was intended. The offer is not capable of being accepted for want of certainty. (2) A who is a dealer in coconut oil only, offers to sell to B ―one hundred quintals of oil‖. The nature of A‘s trade affords an indication of the meaning of the words, and there is a valid offer. 4. An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat. Offer vis-a-vis declaration of intention to offer A person may make a statement without any intention of creating a binding obligation. It may amount to a mere declaration of intention and not to a proposal. Examples (1) An auctioneer, N advertised that a sale of office furniture would take place at a particular place. H travelled down about 100 Km to attend the sale but found the furniture was withdrawn from the sale. H sued the auctioneer for his loss of time and expenses.
(2) A father wrote to his would-be son-in-law that his daughter would have a share of what he would leave at the time of his death. At the time of death, the son-in-law staked his claim in the property left by the deceased. Held: The son-in-law‘s claim must fail as there was no offer from his father-in-law creating a binding obligation. It was just a declaration of intention and nothing more (1) Held: that there was no contract. (2) Termination or Lapse of an Offer (3) An offer is made with a view to obtain assent thereto. As soon as the offer is accepted it becomes a contract. But before it is accepted, it may lapse, or may be revoked. Also, the offeree may reject the offer. In these cases, the offer will come to an end. (4) Essential Requirements of a Valid Offer (5) 1. Must be made with a view to obtain acceptance. (6) 2. Must be made with the intention of creating legal relations. (7) 3. Terms of offer must be definite, unambigous and certain or capable of being made certain. (8) 4. It must be distinguished from mere declaration of intention or an invitation to offer. (9) 5. It must be communicated to the offeree. (10) 6. The offer must not contain a term the non-compliance of which may be assumed to amount to acceptance. (11) 7. A tender is an offer as it is in response to an invitation to offer. (12) 8. The Special terms, forming part of the offer, must be duly brought to the notice of the offeree at the time the offer is made. (13) 9. Two identical cross-offers do not make a contract. (14) (1) The offer lapses after stipulated or reasonable time. [Section 6(2)] The offer (15) must be accepted by the offeree within the time mentioned in the offer and if no (16) time is mentioned, then within a reasonable time. The offer lapses after the time stipulated in the offer expires if by that time offer has not been accepted. If no time (17) is specified, then the offer lapses within a reasonable time. What is a reasonable (18) time is a question of fact and would depend upon the circumstances of each case. (19) 2. An offer lapses by the death or insanity of the offerer or the offeree before (20) acceptance. Section 6(4) provides that a proposal is revoked by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. Therefore, if the acceptance is made in ignorance of the death, or insanity of offerer, there would be a valid contract. Similarly, in the case of the death of offeree before acceptance, the offer is terminated. (21) 3. An offer terminates when rejected by the offeree. (22) 4. An offer terminates when revoked by the offerer before acceptance. (23) 5. An offer terminates by not being accepted in the mode prescribed, or if no mode is prescribed, in some usual and reasonable manner. (24) 6. A conditional offer terminates when the condition is not accepted by the offeree. (25) 7. Counter offer. An offer terminates by counter-offer by the offeree. When in place of accepting the terms of an offer as they are, the offeree accepts the same subject to certain condition or qualification, he is said to make a counter-offer. The following have been held to be counter-offers:
(26) (i) Where an offer to purchase a house with a condition that possession shall be given on a particular day was accepted varying the date for possession (27) (ii) An offer to buy a property was accepted upon a condition that the buyer signed an agreement which contained special terms as to payment of deposit, making out title completion date, the agreement having been returned unsigned by the buyer (28) (iii) An offer to sell rice was accepted with an endorsement on the sold and bought note that yellow and wet grain will not be accepted (29) (iv) Where an acceptance of a proposal for insurance was accepted in all its terms subject to the condition that there shall be no assurance till the first premium was paid. (30) meaning of consent: it means an act of assenting to an offer. According to section 13, "Tow or more persons are said to consent when they agree upon the same thing in the same thing in same sense." Thus, consent involves identity of minds in respect of the subject matter of the contract. In English Law, this is called 'consensusad-idem'. (31) Effect of Absence of consent: (32) (33) Free consent: Meaning of consent: it means an act of assenting to an offer. According to section 13, "Tow or more persons are said to consent when they agree upon the same thing in the same thing in same sense." Thus, consent involves identity of minds in respect of the subject matter of the contract. In English Law, this is called 'consensus-ad-idem'. (34) Meaning of Free consent: It is one of the essential elements of a valid contract as it is evidenced by section 10 which provides that all agreements are contracts if they are made by the free consent of the parties... according to section 14, consent is said to be free when it is not caused by (a) Coercion, or (b)Undue influence, or (c) Fraud, or (d) Misrepresentation, or (e) Mistake. (35) (36) Effect of Absence of free consent: (37) When there is consent but it is not free (i.e. when it is caused by coercion or undue influence or fraud or misrepresentation), the contract is usually voidable at the option of the party whose consent was so caused. (38) 1. COERCION (39) (40) Meaning of coercion[section 15]: It means compelling a person to enter into a contract, by use of physical force/activities forbidden by Indian penal code, OR threatens to do activities forbidden by I.P.C, OR threatens to damages the property. Effect of coercion: Voidable and can be canceled at the option of aggrieved party. OR A 'suicide and a 'threat to commit suicide' are not punishable but an attempt to commit suicide is punishable under the Indian penal code. X threatens to kill Y if he does not sell his house for Rs. 1,00,000 to X. Y sells his house to X and receives the payments. Here, V's consent has been obtained by coercion. Hence, this contract (41) is voidable at the option of Y. If Y decides to avoid the contract, he will have to return Rs 1,00,000 which he had received from X. "Y" (aggrieved party) will return Rs.
1,00,000 "X" (defendant party) will return the house and any benefit from the goods. When voidable contract cannot be canceled: When the third party become interested into a voidable contract. E.g. A obtain the car of B through coercion. Let, A sold it to "C" an innocent buyer, now B cannot get the contract canceled. When the aggrieved party ratify/confirm/affirm then contract can not be cancel. 2. UNDUE INFLUENCE: Meaning of Undue influence[section 16(1)]: The term 'undue influence' means dominating the will of the other person to obtain an unfair advantage over the other. According to section 16(1), a contract is said to be induced by undue influence (42) 1. where the relations subsisting between the parties are such that one of them is in a position to dominate the will of the other, and (43) 2. the dominant party uses that position to obtain an unfair advantage over the other. (44) (45) When two-partner are in relation, and one of them is dominant and other is in weaker position and dominant person takes undue-Advantage, then it is called"Undueinfluence." No presumption of domination of will According to judicial decisions held in various cases, there is no presumption of undue influence in the following relationships: (46) 1. Husband and wife (47) 2. landlord and tenant (48) 3. Creditor and debtor (49) (50) Effect of undue influence [section 19A]: when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Comparison between coercion and undue influence: Similarities: In case of both coercion and undue influence, the consent is not free and the contract is voidable at the option of the aggrieved party. 3. FRAUD Meaning and essential elements of fraud [section 17] : The term 'fraud' means a false representation of fact made willfully with a view to deceive the other party. Fraud includes following: Wrong suggestion about a fact, knowing that it is not-true; Note: In case of fraud, the seller is always liable even though buyer has an opportunity to check the fraud. Any activity fitted (supported) to deceive. It covers those acts which deceive but are not covered under any other clause. Effect of Fraud[section-19] The effects of fraud are as follows: (a) The party whose consent was caused by fraud can rescind (cancel) the contract but he cannot do so in the following cases: Where silence amounts to fraud, the aggrieved party cannot rescind the contract if he had the means of discovering the truth with ordinary diligence; Where the party gave the consent in ignorance of fraud; Where the party after becoming aware of the fraud takes a benefit under the contract;
Where an innocent third party before the contract is rescinded acquires for consideration some interest in the property passing under the contract. Where the parties cannot be restored to their original position. (b) The party whose consent was caused by fraud may, if he thinks fit, insist that the contract shall be performed and that he shall be put in the position in which he would have been if the representation made had been true. 1. The party whose consent was caused by fraud, can claim damage if he suffers some loss. Weather silence is fraud? Comment: General concept: According to explanation to section 17, "Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud". In other words, Silence is not fraud. It is buyer, who must check the goods & suitability. E.g. X purchased a used computer from Z thinking it as a computer imported from USA, Z failed to disclose the fact to X. On knowing the fact X wants to repudiate the contract. So, here X cannot repudiate/rescind/cancel the contract. Exceptions to the general rule: The general rule that silence does not amount to fraud has the following exceptions. Where the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak. Such duty arises in the following two cases: When silence is equivalent to speech: E.g. "A student of BBA select a Business law-book and asks the seller". If seller don't stop me from buying this book, I will assume that "it is best". The seller remained silent here the student will treat "silence" as speech. If the book was inferior, then it is a case of fraud. Disclosure of dangerous nature: E.g. Shyam sold his horse to Ram a buyer for Rs. 11000/Shyam knows that horse was "wicked" but fails to disclose it to buyer. Here seller has committed fraud by remaining silent. 4. Misrepresentation The term "misrepresentation" means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party. Section 18 defines the term "misrepresentation" as follows "Misrepresentation" means and includesThe positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; Any breach of duly which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading an other to his prejudice or to the prejudice of anyone claiming under him; Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement. Essential elements of misrepresentation: By a party to a contract: The representation must be made by a party to a contract or by anyone with his connivance or by his agent. Thus, the misrepresentation by a stranger to the contract does not affect the validity of the contract. False representation: There must be a false representation and it must be made without the knowledge of its falsehood i.e. the person making it must honestly even it is to be true. Representation as to fact: The representation must relate to a fact. In other words, a mere opinion, a statement of expression or intention does not amount to misrepresentation.
"Innocent misstatement made into good faith OR without any intention to cause loss" E.g. A farmer says that his land is very productive and produces 100 quintal per acre. This is misrepresentation and buyer can cancel the contract. Note: When the buyer has an opportunity to check the misrepresentation, but he fails then buyer cannot cancel the contract. E.g. An owner of factory, while selling his factory, express his opinion as my factory produces 1000 kg per ann-um and requested the buyer to find out exact production by checking "production-record". If the buyer fails to check the production record then buyer cannot blame seller. Effect of misrepresentation[section 19] The effects of misrepresentation are as follows: 1. Right to rescind the contract The party whose consent was caused by misrepresentation can rescind (cancel) the contract but he cannot do so in the following cases: where the party whose consent was caused by misrepresentation had the means of discovering the truth with ordinary diligence; where the party gave the consent in ignorance of misrepresentation; where the party after becoming aware of the misrepresentation, takes a benefit under the contract; where an innocent third party, before the contract is rescinded, acquires for consideration some interest in the property passing under the contract; where the parties cannot be restored to their original position. (b) Right to insist upon performance The party whose consent was caused by misrepresentation may if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representation made had been true. Comparison between fraud and misrepresentation Similarities: There are basically two similarities in case of fraud and misrepresentation as follows: 1. In both the cases, a false representation is made by a party; 2. In both the cases, the contract is voidable at the option of the party whose consent is obtained by fraud or misrepresentation. 5. Mistake Meaning of mistake [section 20] A mistake is said to have occurred where the parties intending to do one thing by error do something else. Mistake is "erroneous belief" concerning something. Classification of Mistake of Law: (a) Mistake of Indian Law(In sense of penalty): The contract is not voidable because everyone is supposed to know the law of his country. e.g. disobeying traffic rules" (b) Mistake of Foreign Law(void-ab-initio): A mistake of foreign law is treated as mistake of fact, i.e. the contract is void if both the parties are under a mistake as to a foreign law because one cannot be expected to know the law of other country. Mistake of fact Mistake of fact be either Unilateral mistake or Bilateral mistake. Unilateral mistake [section 22]: The term 'unilateral mistake' means where only one party to the agreement is under a mistake. According to section 22, "A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to matter of fact." Bilateral mistake [section 22]: The term 'bilateral mistake' means where both the parties to the agreement are under a mistake. According to section 20, "where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement
is void." thus, the following three conditions must be satisfied before declaring a contract void under this section: 1. Both the parties must be under a mistake 2. Mistake must be of fact but not of law. According to explanation to section 20. "An erroneous opinion as to the value of the thing which forms the subject matter of agreement is not to be deemed a mistake as to a matter of fact." Note: Mistake about price is valid. Void Agreements: A void contract, also known as a void agreement, is not actually a contract. A void contract cannot be enforced by law. Void contracts are different from voidable contracts, which are contracts that may be (but not necessarily will be) nullified. An agreement to carry out an illegal act is an example of a void contract or void agreement. For example, a contract between drug dealers and buyers is a void contract simply because the terms of the contract are illegal. In such a case, neither party can go to court to enforce the contract. A void contract is void ab initio, i e from the beginning while a voidable contract can be voidable by one or all of the parties A contract can also be void due to the impossibility of its performance. E g: If a contract is formed between two parties A & B but during the performance of the contract the object of the contract becomes impossible to achieve (due to action by someone or something other than the contracting parties), then the contract cannot be enforced in the court of law and is thus void. A void contract can be one in which any of the prerequisites of a valid contract is/are absent for example if there is no contractual capacity, the contract can be deemed as void. In fact,void means that a contract does not exist at all. The law can not enforce any legal obligation to either party especially the disappointed party because they are not entitled to any protective laws as far as contracts are concerned. Features of Void agreements: An agreement made by incompetent parties (Minor/Incapacitated Person) is void. Any agreement with a bilateral mistake is void. Agreements which have unlawful consideration is void. Agreement with a unlawful object is void. Agreements made without consideration is void. Agreement in restraint of marriage of any major person is void (absolute restriction). Agreement in restraint of trade is void.(reasonable reason) Agreement in restraint of legal proceedings is void. An agreement the terms of which are uncertain is void. An agreement by way of wager (betting/gambling) is void. An agreement contingent upon the happening of an impossible event is void. Agreement to do impossible acts is void. Distinction Between Void and Voidable Contracts Certain defenses – generally those that affect assent – can render a contract voidable by the aggrieved party. Other defenses – typically those that pertain to law and public policy – may render a contract void. The distinction is not clear-cut; for example, while defenses such as incapacity, duress or mistake generally render a contract merely voidable, if the circumstances prevented a meeting of the minds, the contract will be deemed void. Likewise, contracts with an illegal purpose will generally be deemed void unless the parties are not in pari delicto .
The legal effects of a contract being deemed voidable as opposed to void are: 1) Where a contract is merely voidable, the innocent party may enforce the contract, but the contract cannot be enforced against him. If a contract is void, neither party can enforce the contract. 2) Rights in a voidable contract are transferable; rights cannot be transferred in a void contract. 3) If a party improperly transfers property to a bona fide purchaser for value, the injured party may recover the property if the contract governing the transaction is void but not if it was voidable. 4) Voidable contracts may be ratified by the party with the power to avoid the contract once the reason for such avoidance – such as minor age, mental impairment, duress, undue influence or mistake – no longer exists. Void contracts cannot be ratified. Negotiable Instruments Act, 1881 Negotiable Instruments Act, 1881 was passed by British India and for over 130 years and except for amendments, the question of revising the act as a whole never been raised. Important Characteristics of Negotiable Instruments Following are the important characteristics of negotiable instruments: (1) The holder of the instrument is presumed to be the owner of the property contained in it. (2) They are freely transferable. (3) A holder in due course gets the instrument free from all defects of title of any previous holder. (4) The holder in due course is entitled to sue on the instrument in his own name. (5) The instrument is transferable till maturity and in case of cheques till it becomes stale (on the expiry of 6 months from the date of issue). (6) Certain equal presumptions are applicable to all negotiable instruments unless the contrary is proved. History: The history of the present Act is a long one. The Act was originally drafted in 1866 by the 3rd India Law Commission and introduced in December, 1867 in the Council and it was referred to a Select Committee. Objections were raised by the mercantile community to the numerous deviations from the English Law which it contained. The Bill had to be redrafted in 1877. After the lapse of a sufficient period for criticism by the Local Governments, the High Courts and the chambers of commerce, the Bill was revised by a Select Committee. In spite of this Bill could not reach the final stage. In 1880 by the Order of the Secretary of State, the Bill had to be referred to a new Law Commission. On the recommendation of the new Law Commission the Bill was re-drafted and again it was sent to a Select Committee which adopted most of the additions recommended by the new Law Commission. The draft thus prepared for the fourth time was introduced in the Council and was passed into law in 1881 being the Negotiable Instruments Act, 1881 (Act No.26 of 1881) The most important class of Credit Instruments that evolved in India were termed Hundi. Their use was most widespread in the twelfth century, and has continued till today. In a sense, they represent the oldest surviving form of credit instrument. These were used in trade and credit
transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In Modern era Hundi served as Travellers Cheques. Types of Negotiable Instruments According to Section of the Negotiable Instruments Act means "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.'[3] But in Section 1, it is also described that Local extent, Saving of usage relating to hundis, etc., Commencement. -It extends to the whole of India but nothing herein contained affects the Indian Paper Currency Act, 1871, Section 2, or affects any local usage relating to any instrument in an oriental language. Provided that such usages may be excluded by any words in the body of the instrument, which indicate and intention that the legal relations of the parties thereto shall be governed by this Act; and it shall come into force on the first day of March, 1882.[3] Classification of Negotiable Instruments The negotiable instruments may be classified as under: (1) Bearer Instruments A promissory note, bill of exchange or cheque is payable to bearer when (i) it is expressed to be so payable, or (ii) the only or last endorsement on the instrument is an endorsement in blank, A person who is a holder of a bearer instrument can obtain the payment of the instrument. (2)Order Instruments A promissory note, bill of exchange or cheque is payable to order (i) which is expressed to be so payable; or (ii) which is expressed to be payable to a particular person, and does not contain any words prohibiting transfer or indicating an intention that it shall not be transferable. (3) Inland Instruments (Section 11) A promissory note, bill of exchange or cheque drawn or made in India, and made payable, or drawn upon any person, resident in India shall be deemed to be an inland instrument. Since a promissory note is not drawn on any person, an inland promissory note is one which is made payable in India. Subject to this exception, an inland instrument is one which is either: (i) drawn and made payable in India, or (ii) drawn in India upon some persons resident therein, even though it is made payable in a foreign country. (4) Foreign Instruments An instrument which is not an inland instrument, is deemed to be a foreign instrument. The essentials of a foreign instrument include that: (i) it must be drawn outside India and made payable outside or inside India; or (ii) it must be drawn in India and made payable outside India and drawn on a person resident outside India. (5) Demand Instruments (Section 19) A promissory note or a bill of exchange in which no time for payment is specified is an instrument payable on demand. (6) Time Instruments Time instruments are those which are payable at sometime in the future. Therefore, a promissory note or a bill of exchange payable after a fixed period, or after sight, or on specified day, or on the happening of an ev~nt which is certain to happen, is known as a time instrument. The expression "after slight" in a promissory note means that the payment cannot be demanded on it unless it has been shown to the maker. In the case of bill of exchange, the
expression "after sight" means after acceptance, or after noting for non-acceptance or after protest for non-acceptance. Ambiguous Instruments (Section 17) An instrument, which in form is such that it may either be treated by the holder as a bill or as a note, is an ambiguous instrument. Section 5(2) of the English Bills of Exchange Act provides that where in a bill, the drawer and the drawee are the same person or where the drawee is a fictitious person or a person incompetent to contract, the holder may treat the instrument, at his option, either as a bill of exchange or as a promissory note. Bill drawn to or to the order of the drawee or by an agent on his principal, or by one branch of a bank on another or by the direction of a company or their cashier are also ambiguous instruments. A promissory note addressed to a third person may be treated as a bill by such person by accepting it, while a bill not addressed to anyone may be treated as a note. But where the drawer and payee are the same e.g., where A draws a bill payable to A's order, it is not an ambiguous instrument and cannot be treated as a promissory note. Once an instrument has been treated either as a bill or as a note, it cannot be treated differently afterwards. Inchoate or Incomplete Instrument (Section 20) (i) Promissory Notes A "promissory note" is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain person, or only to bearer of the instrument. (Section 4) Parties to a Promissory Note: A promissory note has the following parties: (a) The maker: the person who makes or executes the note promising to pay the amount stated therein. (b) The payee: one to whom the note is payable. (c) The holder: is either the payee or some other person to whom he may have endorsed the note. (d) The endorser. (e) The endorsee. Essentials of a Promissory Note: To be a promissory note. an instrument must possess the following essentials: (a) It must be in writing. An oral promise to pay will not do. (b) It must contain an express promise or clear undertaking to pay. A promise to pay cannot be inferred. A mere acknowledgement of debt is not sufficient. If A writes to B "I owe you (I.O.U.) Rs. 500",there is no promise to pay and the instrument is not a promissory note. (c) The promise or undertaking to pay must be unconditional. A promise to pay "when able", or "as soon as possible", or "after your marriage to I?", is conditional. But a promise to pay after a specific' time or on the happening of an event which must happen, is not conditional, e.g. "I promise to pay Rs. 1,000 ten days after the death of B", is unconditional. (d) The maker must sign the promissory note in token of an undertaking to pay to the payee or his order. (e) The maker must be a certain person, Le., the note must show clearly who is the person engaging himself to pay. . (f) The payee must be certain. The promissory note must contain a promise to pay to some person or persons ascertained by name or designation or to their order. (g) The sum payable must be certain and the amount must. not be capable of contingent additions or subtractions. If A promises to pay Rs. 100 and all other
sums which shall become due to him, the instrument is not a promissory note. (h) Payment must be in legal money of the country. Thus, a promise to pay Rs. 500 and deliver 10 quintals of rice is not a promissory note. (i) It must be properly stamped in accordance with the provisions of the Indian Stamp Act. Each stamp must be duly cancelled by maker's signature or initials. (j) It must contain the name of place, number and the date on which it is made. However, their omission will not render the instrument invalid, e.g. if it is undated, it is deemed to be dated on the date of delivery. Note: A promissory note cannot be made payable or issued to bearer, no matter whether it is payable on demand or after a certain time (Section 31 of the RBI Act). (ii) Bills of Exchange A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument. (Section 5) The definition of a bill of exchange is very similar to that of a promissory note and for most of the cases the rules which apply10 promissory notes are in general applicable I to bills. There are however, certain important points of distinction between the two. Parties to bills of exchange The following are parties to a bill of exchange: (a) The Drawer: the person who draws the bill. (b) The Drawee: the person on whom the bill is drawn. (c) The Acceptor: one who accepts the bill. Generally, the drawee is the acceptor but a stranger may accept it on behalf of the drawee. (d) The payee: one to whom the sum stated in the bill is payable, either the drawer or any other person may be the payee. (e) The holder: is either the original payee or any other person to whom, the payee has endorsed the bill. In case of a bearer bill, the bearer is the holder. (f) The endorser: when the holder endorses the bill to anyone else he becomes the endorser. (g) The endorsee: is the person to whom the bill is endorsed. (h) Drawee in case of need: Besides the above parties. another person called the "drawee in case of need", may be introduced at the option of the drawer. The name of such a person may be inserted either by the drawer or by any endorser in order that resort may be had to him in case of need, i.e., when the bill is dishonoured by either non-acceptance or non-payment. (i) Acceptor for honour: Further, any person may voluntarily become a party to a bill as acceptor. A person, who on the refusal by the original drawee to accept the bill or to furnish better security, when demanded by the notary, accept the bill supra protest in order to safeguard the honour of the drawer or any endorser, is called the acceptor for honour. Essentials of a Bill of Exchange: (1) It must be in writing. (2) It must contain an unconditional order to pay money only and not merely a request (3) It must be signed by the drawer. (4) The parties must be certain. (5) The sum payable must also be certain. (6) It must comply with other formalities e.g. stamps, date, etc.
Distinction between Bill of Exchange and Promissory Note The following are the important points of distinction between a bill of exchange and a promissory note: (a) A promissory note is a two-party instrument, with a maker (debtor) and a payee (creditor). In a bill. there are three parties-drawer, drawee and payee, though any two out of the three capacities may be filled by one and the same person. In a bill; the drawer is the maker who orders the drawee to pay the bill to a person called the payee or to his order. When the drawee accepts the bill he is called the acceptor, (b) A note cannot be made payable to the maker himself, while in a bill, the drawer and payee may be the same person. (c) A note contains an unconditional promise by the maker to pay to the payee or his order; in a bill there is an unconditional order to the drawee to pay according to the directions of the drawer. (d) A note is presented for payment without any prior acceptance by the maker. A bill payable after sight must be accepted by the drawee or someone else on his behalf before it can be presented for payment. (e) The liability of the maker of a pro-note is primary and absolute, but the liability of the drawer of a bill is secondary and conditional. (f) Foreign bill must be protested for dishonour but no such protest is necessary in the case of a note. (g) When a bill is dishonoured, due notice of dishonour is to be given by the holder to the drawer and the intermediate endorsee, but no such notice need to be given in the case of a note. (h) A bill can be drawn payable to bearer provided it is not payable on demand. A promissory note cannot be made payable to be3rer, even if it is made payable otherwise than on demand. How Bill of Exchange Originates - Forms of Bills of Exchange. Bills of exchange were originally used for payment of debts by traders residing in one country to another country with a view to avoid transmission of coin. Now-a-days they are used more as trade bills both in connection with domestic trade and foreign trade and are called inland bills and foreign bills respectively. Inland Bills (Sections 11 and 12) A bill of exchange is an inland instrument if it is (i) drawn or made and payable in India, or (ii) drawn in India upon any person who is a resident in India, even though it is made payable in a foreign country. But a promissory note to be an inland shouid be drawn and payable in India, as it has no drawee. Two essential conditions to make an inland instrument are: (1) the instrument must have been drawn or made in India; and (2) the instrument must be payable in India or the drawee must be in India. Examples: A bill drawn in India, payable in USA, upon a person in India is an inland instrument. A bill drawn in India and payable in India but drawn on a person in USA is also an inland instrument or made in India Foreign Bills All bills which are not inland are deemed to be foreign bills. Normally foreign bills are drawn in sets of three copies. Trade Bill A bill drawn and accepted for a genuine trade transaction is termed as a trade bill. When a trader sells goods on credit, he may make use of a bill of exchange. Suppose A sells goods worth Rs. 1,000 to B and allows him 90 days time to pay the price, A will draw a bill of exchange on B, in the following terms: "Ninety days after date pay A or order, the sum of one thousand rupees
only for value received". A will sign the bill and then present it to B for acceptance. This is necessary because, until a bill is accepted by the drawee, nobody has either rights or obligations. If B agrees to obey the order of A, he will accept the bill by writing across its face the word "accepted" and signing his name underneath and then delivering the bill to the holder. B, the drawee, now becomes the acceptor of the bill and liable to its holders. Such a bill is a genuine trade bill. Accommodation Bill All bills are not genuine trade bills, as they are often drawn for accommodating a party. An accommodation bill is a bill in which a person lends or gives his name to oblige a friend or some person whom he knows or otherwise. In other words, a bill which is drawn, accepted or endorsed without consideration is called an accommodation bill. The party lending his name to oblige the other party is known as the accommodating or accommodation party, and the party so obliged is called the party accommodated. An accommodation party is not liable on the instrument to the party accommodated because as between them there was no consideration and the instrument was merely to help, But the accommodation party is liable to a holder for value, who takes the accommodation bill for value, though such holder may not be a holder in due course. Thus, A may be in need of money and approach his friends B and C who, instead of lending the money directly, propose to draw an "Accommodation Bill" in his favour in the following form: "Three months after date pay A or order, the sum of Rupees one thousand only' B To C Specimen of a Bank Draft A.B.C. Bank X.Y.Z. Branch No..................... Date................... On demand pay 'A' or order the sum of rupees one thousand five hundred only for value received. Rs. 1,500/Sd./ Manager To 'B' Branch, (Place) In the above demand draft the drawer is X.Y.Z. Branch, the drawee is 'B' branch and the payee is 'A'. (iii) Cheques Section 6 of the Act provides that a cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand. Simply stated, a cheque is a bill of exchange drawn on a bank payable always on demand. Thus, a cheque is a bill of exchange with two additional qualifications, namely: (i) it is always drawn on a banker, and (ii) it is always payable on demand. A cheque being a species of a bill of exchange, must satisfy all the requirements of a bill; it does not, however, require acceptance. Note: By virtue of Section 31 of the Reserve Bank of India Act, no bill of exchange or hundi can be made payable to bearer on demand and no promissory note or a bank draft can be made payable to bearer at all, whether on demand or after a specified time. Only a cheque can be payable to bearer on demand. Parties to a cheque The following are the parties to a cheque:
(a) The drawer: The person who draws the cheque. (b) The drawee: The banker of the drawer on whom the cheque is drawn. (c), (d), (e) and (f) The payee, holder, endorser and endorsee: same as in the case of a bill. Essentials of a Cheque (1) It is always drawn on a banker. (2) It is always payable on demand. (3) It does not require acceptance. There is, however, a custom among banks to mark cheques as good for purposes of clearance. (4) A cheque can be drawn on bank where the drawer has an account. (5) Cheques may be payable to the drawer himself. It may be made payable to bearer on demand unlike a bill or a note. (6) The banker is liable only to the drawer. A holder -has no remedy against the banker if a cheque is dishonoured. (7) A cheque is usually valid for fix months. However, it is not invalid jf it is post dated or antedated. (8) No Stamp is required to be affixed on cheques. Distinction between Cheques and Bills of Exchange As a general rule, the provisions applicable to bills payable on demand apply to cheques, yet there are few points of distinction between the two, namely: (a) A cheque is a bill of exchange and always drawn on a banker, while a bill may be drawn on anyone, including banker. (b) A cheque can only be drawn payable on demand, a bill may be drawn payable on demand, or on the expiry of a specified' period after sight or date. (c) A bill payable after sight must be accepted before payment can be demanded, a cheque does not require acceptance and is intended for immediate payment. (d) A grace of 3 days is allowed in the case of time bills, while no grace is given. in the case of a cheque, for payment. (e) The drawer of a bill is discharged, if it is not presented for payment, but the drawer of a cheque is discharged only if he suffers any damage by delay in presentment for payment. (f) Notice of the dishonour of a bill is necessary, but not in the case of a cheque. (g) The cheque being a revocable mandate, the authority may be revoked by countermanding payment, and is determined by notice of the customer's death or insolvency. This is not so in the case of bilt (h) A cheque may be crossed, but not a bill A cheque is a bill of exchange drawn on a specified banker and always payable on demand. A cheque is always drawn on a particular banker and is always payable on demand. Consequently, all cheques are bills of exchange but all bills are not cheques. Specimen of a Cheque ABC Bank Date_____________ Pay 'A;--------------------------------------------------------------------------------or the bearer sum of rupees--------------------------------------------------------------------------------only. A/c No---------LF-----Sd/-
No---------------------
may be termed as the obligations and rights of the banker. These are: 1. Obligation to honour cheques of the customers. 2. Obligation to collect cheques and drafts on behalf of the customers. 3. Obligation to keep proper record of transactions with the customer. 4. Obligation to comply with the express standing instructions of the customer. 5. Obligation not to disclose the state of customer's account to anyone else. 6. Obligation to give reasonable notice to the customer, if the banker wishes to close the account. 7. Right of lien over any goods and securities bailed to him for a general balance of account. 8. Right of set off and right of appropriation. 9. Right to claim incidental charges and interest as per rules and regulations of the bank as communicated to the customer at the time of opening the account. Liability of a Banker By opening a current account of a customer, the banker becomes liable to his debtor to the extent of the amount so received in the said account and undertakes to honour the cheques drawn by the customer so long as he holds sufficient funds to the customer's credit. If a banker, without justification, fails to honour t1is customer's cheques, he is liable to compensate the drawer for any loss or damage suffered by him. But the payee or holder of the cheque has no cause of action against the banker as the obligation to honour a cheques is only towards the drawer. The banker must also maintain proper and accurate accounts of credits and debits. He must honour a cheque presented in due course. But in the following circumstances, he must refuse to honour a cheque and in some others he may do so. 8. When Banker must Refuse Payment In the following cases the authority of the banker to honour customer's cheque comes to an end, he must refuse to honour cheques issued by the customer: (a) When a customer countermands payment Le., where or when a customer, after issuing a cheque issues instructions not to honour it, the banker must not pay it. (b) When the banker receives notice of customer's death. © When customer has been adjudged an insolvent. (d) When the banker receives notice of customer's insanity. (e) When an order (e.g., Garnishee Order) of the Court, prohibits payment. (f) When the customer has given notice of assignment of the credit balance of his account. (g) When the holder's title is defective and the banker comes to know of it. (h) When the customer has given notice for closing his account. When Banker may Refuse Payment In the following cases the banker may refuse to pay a customer's cheque: (a) When the cheque is post-dated. (b) When the banker has not sufficient funds of the drawer with him and there is no communication between the bank and the customer to honour the cheque. (c) When the cheque is of doubtful legality.
(d) When the cheque is not duly presented, e.g., it is presented after banking hours. (e) When the cheque on the face of it is irregular, ambiguous or otherwise materially altered. (f) When the cheque is presented at a branch where the customer has no account. (g) When some persons have joint account and the cheque is not signed jointly by all or by the survivors of them. (h) When the cheque has been allowed to become stale, Le., it has not been presented within six months of the date mentioned on it. Protection of Paying Banker (Sections 10, 85 and 128) Section 85 lays down that where a cheque payable to order purports to be endorsed by or on behalf -of the payee the banker is discharged by payment in due course. He can debit the account of the customer with the amount even though the endorsement turns out subsequently to have been forged, or the agent of the payee without authority endorsed it on behalf of the payee. It would be seen that the payee includes endorsee. This protection is granted because a banker cannot be expected to know the signatures of all the persons in the world. He is only bound to know the signatures of his own customers. Therefore, the forgery of drawer's signature will not ordinarily protect the banker but even in this case, the banker may debit the account of the customer, if it can show that the forgery was intimately connected with the negligence of the customer and was the proximate cause of loss. I n the case of bearer cheques, the rule is that once a bearer cheque, always a bearer cheque. Where, therefore, a cheque originally expressed by the drawer himself to be payable to bearer, the banker may ignore any endorsement on the cheque. He will be discharged by payment in due course. But a cheque which becomes bearer by a subsequent endorsement in blank is not covered by this Section. A banker is discharged from liability on a crossed cheque if he makes payment in due course. Payment in due Course (Section 10) Any person liable to make payment under a negotiable instrument, must make the payment of the amount due thereunder in due course in order to obtain a valid discharge against holder. A payment in due course means a payment in accordance with the apparent tenor of the instrument, in good faith and without negligence to any person in possession thereof. . A payment will be a payment in due course if: (a) it is in accordance with the apparent tenor of the instrument, i.e. according to what appears on the face of the instrument to be the intention of the parties; 1 (b) it is made in good faith and without negligence, and under circumstances which do not afford a ground for believing that the person to whom it is made is not entitled to receive the amount; (c) it is made to the person in possession of the instrument who is entitled as holder to receive payment; (d) payment is made under circumstances which do not afford a reasonable ground believing that he is not entitled to receive payment of the amount mentioned in the instrument; and (e) payment is made in money and money only. Under Sections 10 and 128, a paying banker making payment in due course is protected. Collecting Banker
Collecting Banker is one who collects the proceeds of a cheque for a customer. Although a banker collects the proceeds of a cheque for a customer purely as a matter of service, yet the Negotiable Instruments Act, 1881 indirectly imposes statutory obligation, statutory in nature. This is evident from Section 126 of the Act which provides that a cheque bearing a "general crossing" shall not be paid to anyone other than banker and a cheque which is "specially crossed" shall not be paid to a person other than the banker to whom it is crossed. Thus, a paying banker must pay a generally crossed cheque only to a banker thereby meaning that it should be collected by another banker. While so collecting the cheques for a customer, it is quite possible that the banker collects for a customer, proceeds of a cheque to which the customer had no title in fact. In such cases, the true owner may sue the collecting banker for "conversion". At the same time, it cannot be expected of a banker to know or to ensure that all the signatures appearing in endorsements on the reverse of the cheque are genuine. The banker is expected to be conversant only with the signatures of his customer. A customer to whom a cheque has been endorsed, would reque~t his banker to collect a cheque. In the event of the endorser's signature being proved to be forged at iater date, the banker who collected the proceeds should not be held liable for the simple reason that he has merely collected the proceeds of a cheque. Section 131 of the Negotiable Instruments Act affords statutory protection in such a case where the customer's title to the cheque which the banker has collected has been questioned. It reads as follows: "A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specifically to himself -shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason of only having received such payment. Explanation: A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of-the cheque before receiving payment thereof." The requisites of claiming protection under Section 131 are as follows: Overdue, Stale or Out-of-date Cheques A cheque is overdue or becomes statute-barred after three years from its due date of issue. A holder cannot sue on the cheque after that time. Apart from this provision, the holder of a cheque is required to present it for payment within a reasonable time, as a cheque is not meant for indefinite circulation. In India, a cheque, which has been in circulation for more than six months, is regarded by bankers as stale. If, as a result of any delay in presenting a cheque, the drawer suffers any loss, as by the failure of the bank, the drawer is discharged from liability to the holder to the extent of the damage. Liability of Endorser In order to charge an endorser, it is necessary to present the cheque for payment within a reasonable time of its delivery by such endorser. 'A' endorses and delivers a cheque to B, and B keeps it for an unreasonable length of time, and then endorses and delivers it to C. C presents it for payment within a reasonable time after its receipt by him, and it is dishonoured. C can enforce payment against B but not against A, as qua A, the cheque has become stale. Rights of Holder against Banker A banker is liable to his customer for wrongful dishonour of his cheque but it is not liable to the payee or holder of the cheque. The holder has no right to en.t0rce payment from the banker except in two cases, namely, (i) where the holder does not present the cheque within a reasonable time after issue, and as a result the drawer suffers damage by the failure of the banker in liquidation proceedings; and (ii) where banker pays a crossed cheque by mistake over the counter, he is liable to the owner for any loss occasioned by it. Crossing of Cheques
A cheque is either "open" or "crossed". An open cheque can be presented by the payee to the paying banker and is paid over the counter. A crossed cheque cannot be paid across the counter but must be collected through a banker. A crossing is a direction to the paying banker to pay the money generally to a banker or to a particular banker, and not to pay otherwise. The object of crossing is to secure payment to a banker so that it could be traced to the person receiving the amount of the cheque. Crossing is a direction to the paying banker that the cheque should be paid only to a banker or a specified banker. To restrain negotiability, addition of words "Not Negotiable" or "Account Payee Only" is necessary. A crossed bearer cheque can be negotiated by delivery and crossed order cheque by endorsement and delivery. Crossing affords security and protection to the holder of the cheque. Modes of Crossing (Sections 123-131A) There are two types of crossing which may be used on cheque, namely: (i) General, and (ii) Special. To these may be added another type, Le. Restrictive crossing. It is general crossing where a cheque bears across its face an addition of two parallel transverse lines and/or the addition of the words "and Co." between them, or addition of "not negotiable". As stated earlier, where a cheque is crossed generally, the paying banker will pay to any banker. Two transverse parallel lines are essential for a general crossing (Sections 123126). In case of general crossing, the holder or payee cannot get the payment over the counter of the bank but through a bank only. The addition of the words "and Co." do not have any significance but the addition of the words "not negotiable" restrict the negotiability of the cheque and in case of transfer, the transferee will not give a better title than that of a transferor. Where a cheque bears across its face an addition of the name of a banker, either with or without the words "not negotiable" that addition constitutes a crossing and the cheque is crossed specially and to that banker. The paying banker will pay only to the banker whose name appears across the cheque, or to his collecting agent. Parallel transverse lines are not essential but the name of the banker is the insignia of a special crossing. In case of special crossing, the paying, banker is to honour the cheque only when it is prescribed through the bank mentioned in the crossing or it's agent bank. Account Payee's Crossing: Such crossing does, in practice, restrict negotiability of a cheque. It warns the collecting banker that the proceeds are to be credited only to the account of the payee, or the party named, or his agent. If the collecting banker allows the proceeds of a cheque bearing such crossing to be credited to any other account, he will be guilty of negligence and will not be entitled to the protection given to collecting banker under Section 131. Such crossing does not affect the paying banker, who is under no duty to ascertain that the cheque is in fact collected for the account of the person named as payee. *Specimen of a general crossing * Specimen of a special crossing Not Negotiable Crossing A cheque may be crossed not negotiable by writing across the face of the cheque the words "Not Negotiable" within two transverse parallel lines in the case of a general crossing or along with the name of a banker in the case of a special crossing. Section 130 of the Negotiable Instruments Act provides "A person taking a cheque crossed generally or specially bearing in either case with the words "not negotiable" shall not have and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had". The crossing of cheque "not negotiable" does not mean that it is non-transferable. It only deprives the instrument of the incident of negotiability. Normally speaking, the essential feature of a negotiable instrument as opposed to chattels is that a person who takes the instrument in good
faith, without negligence, for value, before maturity and without knowledge of the defect in the title of the transferor, gets a good title to the instrument. In other words, he is called a holder in due course who acquires an indisputable title to the cheque. (When the instrument passes through a holder-in-due course, it is purged of all defects and the subsequent holders also get good title). It is exactly this important feature which is taken away by crossing the cheque "not negotiable". In other words, a cheque crossed ―not negotiable" is like any other chattel and therefore the transferee gets same title to the cheque which his transferor had. That is to say that the transferee cannot claim the rights of a holder-in-due-course. So long as the title of the transferors is good, the title of the transferees is also good but if there is a taint in the title to the cheque of one of the endorsers, then all the subsequent transferees' title also become tainted with the same defect-they cannot claim to be holders-in-due-course. Maturity Cheques are always payable on demand but other instruments like bills, notes, etc. may be made payable on a specified date or after the specified Maturity is the date on which the payment of an instrument falls due. Every instrument payable at a specified period after date or after sight is entitled to three days of grace. Such a bill or note matures or falls due on the last day of the grace period, and must be presented for payment on that day and if dishonoured, suit can be instituted on the next day after maturity. If an instrument is payable by instalments, each instalment is entitled to three days of grace. No days of grace are allowed for cheques, as they are payable on demand. Where a note or bill is expressed to be payable on the expiry of specified number of months after sight, or after date, the period of payment terminates on the day of the month which corresponds with the date of instrument, or with the date of acceptance if the bill be accepted or presented for sight, or noted or protested for non-acceptance. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month. Holder According to Section 8 of the Act a person is a holder of a negotiable instrument who is entitled in his own name (i) to the possession of the instrument, and (ii) to recover or receive its amount from the parties thereto. It is not every person in possession of the instrument who is called a holder. To be a holder, the person must be named in the instrument as the payee, or the endorsee, or he must be the bearer thereof. A person who has obtained possession of an instrument by theft, or under a forged endorsement, is not a holder. as he is not entitled to recover the instrument. The holder implies de jure (holder in law) holder and not de facto (holder in fact) holder. An agent holding an instrument for his principal is not a holder although he may receive its payment. Holder in Due Course Section 9 states that a holder in due course is (i) a person who for consideration, obtains possession of a negotiable instrument if payable to bearer, or (ii) the payee or endorsee thereof, if payable to order, before its maturity and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. In order to be a holder in due course, a person must satisfy the following conditions: (i) He must be the holder of the instrument. (ii) He should have obtained the instrument for value or consideration. (iii) He must have obtained the negotiable instrument before maturity. (iv) The instrument should be complete and regular on the face of it. (v) The holder should take the instrument in good faith.
A holder in due course is in a privileged position. He is not only himself protected against all defects of the persons from whom he received the instrument as current coin, but also serves as a channel to protect all subsequent holders. A holder in due course can recover the amount of the instrument from all previous parties, although, as a matter of fact, no consideration was paid by some of the previous parties to the instrument or there was a defect of title in the party from whom he took it. Once an instrument passes through the hands of a holder in due course, it is purged of all defects. It is like current coin. Whoever takes it can recover the amount from all parties previous to such holder. . Capacity of Parties Capacity to incur liability as a party to a negotiable instrument is co-extensive with capacity to contract. According to Section 26, every person capable of contracting according to law to which he is subject, may bind himself and be bound by making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. Negatively, minors, lunatics, idiots, drunken person and persons otherwise disqualified by their personal law, do not incur any liability as parties to negotiable instruments. But incapacity. of one or more of the parties to a negotiable instrument in no way, dim1nishes the abilities and the liabilities of the competent parties. Where a . minor is the endorser or payee of an instrument which has been endorsed all the parties accepting the minor are liable in the event of its dishonour. Liability of Parties The provisions regarding the liability of parties to negotiable instruments are laid down in Sections 30 to 32 and 35 to 42 of the Negotiable Instruments Act. These provisions are as follows: 1. Liability of Drawer (Section 30) The drawer of a bill of exchange or cheque is bound, in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour . has been given to or received by the drawer. The nature of drawer's liability is that by drawing a bill, he undertakes that (i) on due presentation, it shall be accepted and paid according to its tenor, and (ii) in case of dishonour, he will compensate the holder or any endorser, provided notice of dishonour has been duly given. However, in case of accommodation bill no notice of dishonour to the drawer is required. The liability of a drawer of a bill of exchange is secondary and arises only on default of the drawee, who is primarily liable to make payment of the negotiable instrument. 2. Liability of the Drawee of Cheque (Section 31) The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so and, or in default of such payment, he shall compensate the drawer for any loss or damage caused by such default. As a cheque is a bill of exchange, drawn on a specified banker, the drawee of a cheque must always be a banker. The banker, therefore, is bound to pay the cheque of the drawer, i.e., customer, if the following conditions are satisfied: (i) The banker has sufficient funds to the credit of customer's account. (ii) The funds are properly applicable to the payment of such cheque, e.g., the funds are not under any kind of lien etc. . (iii) The cheque is duly required to be paid, during banking hours and on or after the date on which it is made payable.
If the banker is unjustified in refusing to honour the cheque of its customer, it shall be liable for damages. 3. Liability of "Maker" of Note and ''Acceptor' of Bill (Section 32) In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity, according to the apparent tenor of the note or acceptance respectively. The acceptor of a bill of exchange at or after maturity is bound to pay tbe amount thereof to the holder on demand: It follows that the liability of the acceptor of a bill corresponds to that of the maker of a note and is absolute and unconditional but the liability under this Section is subject to the contract to the contrary (e.g., as in the case of accommodation bills) and may be excluded or modified by a collateral agreement. Further, the payment must be made to the party named in the instrument and not to any-one else, and it must be made at maturity and not before. 4. Liability of endorser (Section 35) Every endorser incurs liability to the parties that are subsequent to him. Whoever endorses and delivers a negotiable instrument before maturity is bound thereby to every subsequent holder in case of dishonour of the instrument by the drawee, acceptor or maker, to compensate such holder of any loss or damage caused to him by such dishonour provided (i) there is no contract to the contrary; (ii) he (endorser) has not expressly excluded, limited or made conditional his own liability; and (iii) due notice of dishonour has been given to, or received by, such endorser. Every endorser after dishonour, is liable upon the instrument as if it is payable on demand. He is bound by his endorsement notwithstanding any previous alteration of the instrument. (Section 88) · 5. Liability of Prior Parties (Section 36) Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. Prior parties may include the maker or drawer, the acceptor and all the intervening endorsers to a negotiable instrument. The liability of the prior parties to a holder in due course is joint and several. The holder in due course may hold any or all prior parties liable for the amount of the dishonoured instrument. 6. Liability interse Various parties to a negotiable instrument who are liable thereon stand on a different footing with respect to the nature of liability of each one of them. 7. Liability of Acceptor of Forged Endorsement (Section 41) An acceptor of a bill of exchange already endorsed is not relieved from liability by reason that such endorsement is forged. if he knew or had reason to believe the endorsement to be forged when he accepted the bill. 8. Acceptor's Liability on a Bill drawn in a Fictitious Name An aceeptor of a bill of exchange drawn in a fictitious name and payable to the drawer's order is not, by reason that such name is fictitious, relieved from liability to any holder In due course claiming under an endorsement by the same hand as the drawer's signature, and purporting to be made by the drawer. Negotiation (Section 14) A negotiable instrument may be transferred by negotiation or assignment. Negotiation is the transfer of an instrument (a note, bill or cheque) for one person to another in such a manner as to convey title and to constitute the transferee the holder thereof*. When a negotiable instrument is transferred by negotiation, the rights of the transferee may rise higher than those of the transferor, depending upon the circumstances attending the negotiation. When the transfer is made by assignment, the assignee has only those rights which the assignor possessed.
In case of assignment, there is a transfer of ownership by means of a written and registered document. Negotiability and Assignability Distinguished A transfer by negotiation differs from transfer by assignment in the following respects: (a) Negotiation requires mere delivery of a bearer instrument and endorsement and delivery of an order instrument to effectuate a transfer. Assignment requires a written document signed by the transferor. (b) Notice of transfer of debt (actionable claim) must be given by the assignee to the debtor in order to complete his title; no such notice is necessary in a transfer by negotiation. (c) On assignment, the transferee of an actionable claim takes it subject to all the defects in the title of, and subject to all the equities and defences available against the assignor, even though he took the assignment for value and in good faith. In case of negotiation the transferee, as holder-in-due course, "takes the instrument free from any defects in the title of the transferor. Importance of Delivery Negotiation is effected by mere delivery of a bearer instrument and by endorsement and delivery of an order instrument. This shows that "delivery" is essential in negotiable instruments. Section 46 expressly provides that making acceptance or endorsement of negotiable instrument is not complete until delivery,adual or constructive, of the instrument. Delivery made voluntarily with the intention of passing property in the instrument to the person to whom it is given is essential. Negotiation by Mere Delivery A bill or cheque payable to bearer is negotiated by mere delivery of the instrument. An !instrument is payable to bearer: (i) Where it is made so payable, or (ii) Where it is originally made payable to order but the only orthe last endorsement is in blank. (iii) Where the payee is a fictitious or a non-existing person (iv) These Instruments do not require signature of the transferor. The person who takes them is a holder, and can sue in his own name on them. Where a bearer negotiates an instrument by mere delivery, and does not put his signature thereon,-he is not liable to any party to the instrument in case the instrument is dishonoured, as he has not lent his credit to it. His obligations are only towards his immediate transferee and to no other holders. A cheque, originally drawn payable to bearer remains bearer, even though it is subsequently endorsed in full. The rule is once a bearer cheque alWays a bearer cheque. _, Negotiation by Endorsement and Delivery An instrument payable to a specified person or to the order of a specified person or to a specified person or order is an instrument payable to order. Such an instrument can be negotiated only by endorsement and delivery. Unless the holder signs his endorsement on the instrument, the transferee does not become a holder. Where an instrument payable to order is delivered without endorsement, it is merely assigned and not negotiated and the holder thei60f is not entit:ed to the rights of a holder in due course, and he cannot negotiate it to a third person. Endorsement (Sections 15 and 16) Where the maker or holder of a negotiable instrument signs the same otherwise than as such maker for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto (called Allonge), or so, signs for the same purpose, a stamped paper intended to be
completed as a negotiable instrument, he is said to endorse the same (Section 15), the person to whom the instrument is endorsed is called the endorsee. In other words, 'endorsement' means and involves the writing of something on the back of an instrument for the purpose of transferring the right, title and interest therein to some other person. Classes of endorsement An endorsement may be (a) Blank or General, (b) Special or Full, (c) Restrictive, or (d) Partial, and (e) Conditional or Qualified. (a) Blank or General: An endorsement is to be blank or general where the endorser merely writes his signature on the back of the instrument, and the instrument so endorsed becomes payable to bearer, even though originally it was payable to order. Thus, where bill is payable to "Mohan or order", and he writes on its back "Mohan", it is an endorsement in blank by Mohan and the property in the bill can pass by mere delivery, as long as the endorsement continues tobe a/blank. But a holder of an instrument endorsed in blank may convert the endorsement in blank into an endorsement In full, by writing above the endorser's signature, a direction to pay the instrument to another person or his order. (b) Special or Full: If the endorser signs his name and adds a direction to pay the amount mentioned in the instrument to, or to the order of a specified person, the endorsement is said to be special or in full. A bill made payable to Mohan or Mohan or order, and endorsed "pay to the order of Sohan" would be specially endorsed and Sohan endorses it further. A blank endorsement can be turned into a special one by the addition of an order making the bill payable to the transferee. . (c) Restrictive: An endorsement is restrictive which prohibits or restricts the further negotiation of an instrument. Examples of restrictive endorsement: "Pay A only" or "Pay A for my use" or "Pay A on account of B" or "Pay A or order for collection". (d) Partial: An endorsement partial is one which purports to transfer to the endorsee a part only of the amount payable on the instrument. A partial endorsement does not operate as negotiation of the instrument. A holds a bill for Rs. 1,000 and endorses it as "Pay B or order Rs. 500". The endorsement is partial and invalid. (e) Conditional or qualified: An p"dorsement is conditional or qualified which limits or negatives the liability of the endorser. An endorser may limit his liability in any of the following ways: (i) By sans recourse endorsement, Le. by making it clear that he does not incur the liability of an endorser to the endorsee or subsequent holders and they should not look to him in case of dishonour of instrument. The endorser excludes his liability by adding the words "sans recourse" or "without recourse", e.g., "pay A or order same recourse". (ii) By making his liability depending upon happening of a specified event which may never happen, e.g., the holder of a bill may endorse it thus: "Pay A-or order on his marrying B". In such a case, the endorser will not be liable until. A mafries B. It is pertinent to refer to Section 52 of the Negotiable Instruments Act, 1881 here. It reads "The endorser of a negotiable instrument may, by express words in the endorsement exclude his own liability thereon, or make such liability or the right of the endorsee to receive the amount due thereon depend upon the happening of a specified event, although such event may never happen. Negotiation Back Where an endorser negotiates an instrument and again becomes its holder, the instrument is said to be negotiated back to that endorser and none of the intermediary endorsees are then liable to him. The rule prevents a circuity of action. For example, A, the holder of a bill
endorses it to a, B endorses to C, and C to D, and endorses it again to A. A, being a holder in due course of the bill by second endorsement by,D, can recover the amount thereof from B, C, or D and himself being a prior party is liable to all of them. Therefore, A having been relegated by the second endorsement to his original position, cannot sue B, C and D. Where an endorser so excludes his liability and afterwards becomes the holder of the instrument, all the intermediate endorsers are liable to him. " the italicised portion of the above Section is important. An illustration will make the point clear. A is the payee of a negotiable instrument. He endorses the instrument 'sans recourse' to B, B endorses to C, C to D, and D again endorses it to A. In this case, A is not only reinstated in his former rights but has the right of an endorsee against B, C and D. Negotiation of Lost Instrument or that Obtained by Unlawful Means When a negotiable instrument has been lost or has been obtained from any maker, acceptor or holder thereof by means of an offence or fraud, or for an unlawful consideration, no possessor or endorsee, who claims through the person who found or obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor, or holder from any party prior to such holder unless such possessor or endorsee is, or some person through whom he claims was, a holder in due course. Forged Endorsement The case of a forged endorsement is worth special notice. if an instrument is endorsed in full, it cannot be negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable, for the endorsee obtains title only through his endorsement. Thus, if an instrument be negotiated by means of a forged endorsement, the endorsee acquires no title even though he be a purchaser for value and in good faith, for the endorsement is a nullity. Forgery conveys no title. But where the instrument is a bearer instrument or has been endorsed in blank, it can be negotiated by mere delivery, and the holder derives his title independent of the forged endorsement and can claim the amount from any of the parties to to the instrument. For example, a bill is endorsed, "Pay A or order". A endorses it in blank, and it comes into the hands of B, who simply delivers it to C, C forges B's endorsement and transfer it to D. Here, D, as the holder does not derive his title through the forged endorsement of B, but through the genuine endorsement of A and can claim payment from any of the parties to the instrument in spite of the intervening forgeg endorsement. Acceptance of a Bill of Exchange The drawee of a bill of exchange, as such, has no liability on any bill addressed to him for acceptance or payment. A refusal to accept or to pay such bill gives the holder no rights against him. The drawee becomes liable only after he accepts the bill. The acceptor has to write the word 'accepted' on the bill and sign his name below it.. Thus, it is the acceptor who is primarily liable on a bill. The acceptance of a bill is the indication by the drawee of his assent to the order of the drawer. Thus, when the drawee writes across the face of the bill the word "accepted" and signs his name underneath he becomes the acceptor of the bill. An acceptance may be either general or qualified. A general acceptance is absolute and as a rule, an acceptance has to be general. . Where an acceptance is made subject to some condition or qualification, thereby varying the effect of the bill, it is a qualified acceptance. The holder of the bill may either refuse to take a qualified acceptance or non-acquiescence in it. Where he refuses to take it, he can treat the bill as dishonoured by non-acceptance, and sue the drawer accordingly. Acceptance for Honour When a bill has been noted or protested for non-acceptance or for better security, any person not being a party already liable thereon may, with the consent of the holder, by writing on the
bill, accept the same for the honour of any party thereto. The stranger so accepting, will declare under his hand that he accepts the protested bill for the honour of the drawer or any particular endorser whom he names. The acceptor for honour is liable to pay only when the bill has been duly presented at maturity to the drawee for payment and the drawee has refused to pay and the bill has been noted and protested for non-payment. Where a bill has been protested for non-payment after having been duly accepted, any person may intervene and pay it supra protest for the honour of any party liable on the bill. When a bill is paid supra' protest, it ceases to be negotiable. The stranger, on paying for honour, acquires all the right of holder for whom he pays. Presentment for Acceptance It is only bills of exchange that require presentment for acceptance and even these of certain kinds only. Bills payable on demand or on a fixed date need not be presented. Thus, a bill payable 60 days after due date on the happening of a certain event may or may not be presented for acceptance. But the following bills must be presented for acceptance otherwise, the parties to the bill will not be liable on it: (a) A bill payable after sight. Presentment is necessary in order to fix maturity of the bills; and (b) A bill in which there is an express stipulation that it shall be presented for acceptance before it is presented for payment. Section 15 provides that the presentment for acceptance must be made to the drawee or his duly authorised agent. If the drawee is dead, the bill should be presented to his legal representative, or if he has been declared an insolvent, to the official receiver or assigner. The following are the persons to whom a bill of exchange should be presented: (i) The drawee or his duly authorised agent. (ii) If there are many drawees, bill must be presented to all of them. (iii) The legal representatives of the drawee if drawee is dead. (iv) The official receiver or assignee of insolvent drawee. (v) To a drawee in case of need, if there is any. This is necessary when the original drawee refuses to accept the bill. (vi) The acceptor for honour. In case the bill is not accepted and is noted or protested for nonacceptance, the bill may be accepted by the acceptor for honour. He IS a person who comes forward to accept the bill when it is dishonoured by non-acceptance. The presentment must be made before maturity, within a reasonable time after it is drawn, or within the stipulated period, if any, on a business day within business hours and at the place of business or residence of the drawee. The presentment must be made by exhibiting the bill to the drawee; mere notice of its existence in the possession of holder will not be sufficient. When presentment is compulsory and the holder fails to present for acceptance, the drawer and all the endorsers are discharged from liability to him. Presentment for Acceptance when Excused Compulsory presentment for acceptance is excused and the bill may be treated as dishonoured in the following cases: (a) Where the drawee cannot be found after reasonable search. (b) Where drawee is a fictitious person or one incapable of contracting. (c) Where although the presentment is irregular, acceptance has been refused on some other ground. Presentment for Payment
All notes. bills and cheques must be presented for payment to the maker, acceptor or drawee thereof respectively by or on behalf of the holder during the usual hours of business, and if at banker's within banking hours. Presentment for Payment when Excused No presentment is necessary and the instrument may be treated as dishonoured in the following cases: Where the maker, drawer or acceptor actively does something so as to intentionally obstruct the presentment of the instrument, e.g., deprives the holder of the instrument and keeps it after maturity. (b) Where his business place is closed on the due date. (c) Where no person is present to make payment at the place specified for payment. (d) Where he cannot, after due search be found. (Section 61) (e) Where there is a promise to pay notwithstanding non-presentment. (f) Where the presentment is express or impliedly waived by the party entitled to presentment. (g) Where the drawer could not possibly have suffered any damage by non-presentment. (h) Where the drawer is a fictitious person, or one incompetent to contract. (i) Where the drawer and the drawee are the same person. m Where the bill is dishonoured by non-acceptance. (k) Where presentment has become impossible, e.g., the declaration of war between the countries of the holder and drawee. (I) Where though the presentment is irregular, acceptance has been refused on some other grounds. Dishonour by Non-Acceptance Section 91 provides that a bill is said to be dishonoured by non-acceptance: (a) When the drawee does not accept it within 48 hours from the time of presentment for acceptance. (b) When presentment for acceptance is excused and the bill remains unaccepted. (c) When the drawee is incompetent to contract. (d) When the drawee is a fictitious person or after reasonable search can not be found. (e) Where the acceptance is a qualified one. Dishonour by Non-payment (Section 92) A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same. Also, a negotiable instrument is dishonoured by non-payment when presentment for payment is excused and the instrument when overdue remains unpaid. If the bill is dishonoured either by non-acceptance or by non- payment, the drawer and ail the endorsers of the bill are liable to the holder, provided he gives notice of such dishonour. The drawee is liable only when there is dishonour by non-payment. Notice of Dishonour (Sections 91-98 and Sections 105-107) When a negotiable instrument is dishonoured either by non-acceptance or by non-payment, the holder or some party liable thereon must give notice of dishonour to all other parties whom he seeks to make liable. Each party receiving notice of dishonour must in order to render any prior party liable to himself, give notice of dishonour to such party within a reasonable time after he has received it. The object ot giving notice is not to demand payment but to whom the party notified of his liability and in case of drawer to enable him to protect himself as against
the drawee or acceptor who has dishonoured the instrument issued by him. Notice of dishonour is so necessary that an omission to give 'it discharges all parties other than the maker or acceptor. These parties are discharged not only on the bill or note, but also in respect of the original consideration. . Notice may be oral or in writing, but it must be actual formal notice. It must be given within a responsible' time of dishonour. Notice of Dishonour Unnecessary No notice of dishonour is necessary: (a) When it is dispensed with or waived by the party entitled thereto, e.g. where an endorser writes on the instrument such words as "notice of dishonour waived" , (b) When the drawer has countermanded payment. (c) When the party charged would not suffer damage for want of notice. (d) When the party entitled to notice cannot after due search be found. (e) When the omission to give notice is caused by unavoidable circumstances, e.g., death or dangerous illness of the holder. (f) Where the acceptor is also a drawer, e.g., where a firm draws on its branch. (g) Where the promissory note is not negotiable. Such a note cannot be endorsed. (h) Where the party entitled to notice promises to pay unconditionally. Noting and Protest (Sections 99-104 A) Noting Where a note or bill is dishonoured, the holder is entitled after giving due notice of dishonour, to sue the drawer and the endorsers. Section 99 provides a convenient method of authenticating the fact of dishonour by means of "Noting". Where a bill or note is dishonoured, the holder may, if he so desires, cause such dishonour to be noted by a notary public on the instrument, or on a paper attached thereto or partly on each. The noting or minute must be recorded by the notary public within a reasonable time after dishonour and must contain the fact of dishonour, the date of dishonour, the reason, if any, assigned for such dishonour if the instrument has not been expressly dishonoured the reasons why the holder treats it dishonoured and notary's charges. Protest The protest is the formal notarial certificate attesting the dishonour of the bill, and based upon the noting which has been effected on the dishonour of the bill. After the noting has been made, the formal protest is drawn up by the notary and when it is drawn up it relates back to the date of noting. Where the acceptor of a bill has become insolvent, or has suspended payment, or his credit has been publicly impeached, before the maturity of the bill, the holder may have the bill protested for better security. The notary public demands better security and on its refusal makes a protest known as "protest for better security". Foreign bills must be protested for dishonour when such protest is required by the law of the place where they are drawn. Foreign promissory notes need not be so protested. Where a bill is required by law to be protested, then instead of a notice of dishonour, notice of protest must be given by the notary public. A protest to be valid must contain on the instrument itself or a literal transcript thereof,the names of the parties for and against whom protest is made, the fact and reasons for dishonour together with the place and time of dishonour and the signature of the notary public. Protest affords an authentic evidence of dishonour to the drawer and the endorsee. Discharge The discharge in relation to negotiable instrument may be either (i) £Jischarge of the instrument or (ii) discharge of one or more parties to the instrument from liability.
Discharge of the Instrument A negotiable instrument is discharged: (a) by payment in due course; (b) when the principal debtor 'becomes the holder; (c) by an act that would discharge simple contract; (d) by renunciation; and (e) by cancellation. Discharge of a Party or Parties When any particular party or parties are discharged, the instrument continues to be negotiable and the undischarged parties remain liable on it. For example, the non-presentment of a bill on the due date discharges the endorsers from their liability, but the acceptor remains liable on it. A party may be discharged in the following ways : (a) By cancellation by the holder of the name of any party to it with the intention of discharging him. (b) By release, when the holder releases any party to the instrument (c) Discharge of secondary parties, Le., endorsers. (d) By the operation of the law, Le., by insolvency of the debtor. (e) By allowing drawee more than 48 hours to accept the bill, all previous parties are discharged. (f) By non-presentment of cheque promptly the drawer is discharged. (g) By taking qualified acceptance, all the previous parties are discharged. (h) By material alteration. 44. Material Alteration (Section 87) An alteration is material which in any way alters the operation of the Instrument and the liabilities of the parties thereto. Therefore, any change in an instrument which causes it to speak a different language in.legal effect from that which it originally spoke, or which changes legal character of the instrument is a material alteration. A material alteration renders the instrument void, but it affects only those persons who have already become parties at the date of the alteration. Those who take the altered instrument cannot complain. Section 88 provide$ that an acceptor or endorser of a negotiable instrument is bound by his acceptance or endorsement notwithstanding any previous alteration of the instrument. . \ Examples of material alteration are: Alteration (i) of the date of the instrument (Ii) of the sum payable, (iii) in the time of payment, (iv) of the place of payment, (v) of the rate of interest, (vi) by addition of a new party, (vii) tearing the instrument. in a material part. There is no material alteration and the instrument is not vitiated in the following cases : (i) correction of a mistake, (Ii) to carry out the common Intention of the parties, (iii) an alteration made before the instrument is issued and made with the consent of the parties, (iv) crossing a cheque, (v) addition of the words "on demand" in an instrument where no time of payment is stated. Retirement of a Bill under Rebate An acceptor of a bill may make payment before maturity, and the bill is then said to .be retired, but it is not discharged and must not be cancelled except by the acceptor when it comes into his hands. It is customary in such a case to make allowance of interest on the money to the acceptor for the remainder of the time which the bill has to run. The interest allowance Is known as rebate.
Hundis Hundis are negotiable instruments written in an oriental language. They are sometimes bills of exchange and sometimes promissory notes, and are not covered under the Negotiable Instruments Act, 1881. Generally, they are governed by the customs and usages in the locality but if custom is silent on the point in dispute before the Court, this Act applies to the hundis. The term "hundi" was formerly applicable to native bills of exchange. The promissory notes were then called "teap". The hundis were in circulation in India even before the present Negotiable Instrument Act, 1881 came into operation. The usages attached to these hundis varied with the locality in which they were in circulation. Generally understood, the term "hundi" includes all indigenous negotiable instruments whether they are bills of exchange or promissory notes. An instrument in order to be a hundi must be capable of being sued by the holder in his own name, and must by the custom of trade be transferred like cash by delivery. Obviously the customs relating to hundis were many. In certain parts of the country even oral .. acceptance was in vague. The following types of hundis are worth mentioning : 1. Shah Jog Hundi "Shah" means a respectable and responsible person or a man of worth in t~e bazar. Shah Jog Hundi means a hundi which is payable only to a respectable holder,as opposed. to a hundi payable to bearer. In other words the drawee before paying the same has to satisfy himself that the payee is a 'SHAH'. 2. Jokhmi Hundi A "jokhmi" hundi is always drawn on or against goods shipped on the vessel mentioned in the hundi. It implies a condition that money will be paid only in the event of arrival of the goods against which the hundi is drawn. It is in the nature of policy of insurance. The difference, however, is that the money is paid before hand and is to be recovered if the ship arrives safely. 3. Jawabee Hundi According to Macpherson, "A person desirous of making a remittance writes to the payee and delivers the letter to a banker, who either endorses it on to any of his correspondents near the payee's place of residence, or negotiates its transfer. On the arrival, the letter is forwarded to the payee, who attends and gives his receipt in the form of an answer to the letter which is forwarded by the same channel of the drawer or the order." Therefore, this is a form of hundi which is used for remitting money from one place to another. 4. Nam jog Hundi It is a hundi payable to the party named in the bill or his order. The name of the payee is specifically inserted in the hundi. It can also be negotiated like a bill of exchange. Its alteration into a Shah Jog hundi is a. material alteration and renders it void. 5. Darshani Hundi This is a hundi payable at sight. It is freely negotiable and the price is regulated by demand and supply. They are payable on demand and must be presented for payment within a reasonable time after they are received by the holder. 6. Miadi Hundi This is otherwise called muddati hundi, that is, a hundi payable after a specified period of time. Usually money is advanced against these hundis by shroffs after deducting the advance for the period in advance. There are other forms of hundis also like. Dhani Jog Hundi - A hundi which is payable to "dhani" Le., the owner. Firman Jog Hundi - which is payable to order if can be negotiated by endorsement and delivery.
Presumptions of Law A negotiable instrument is subject to certain presumptions. These have been recognised by the Negotiable Instruments Act under Sections 118 and 119 with a view to facilitate the business transactions. These are described below: It shall be presumed that: (1) Every negotiable instrument was made or drawn for consideration irrespective of the consideration mentioned in the instrument or not. (2) Every negotiable instrument having a date was made on such date. (3) Every accepted bill of exchange was accepted within a reasonable time before its maturity. (4) Every negotiable instrument was transferred before its maturity. (5) The instruments were endorsed in the order in which they appear on it. (6) A lost or destroyed instrument was duly signed and stamped. (7) The holder of the instrument is a holder in due course. (8) In a suit upon an instrument which has been dishonoured, the Court shall presume the fact of dishonour, or proof of the protest. However these legal presumptions are rebuttable by evidence to the contrary. The burden to prove to the contrary lies upon the defendant to the suit and not upon the plaintiff. Payment of Interest in case of dishonour The Negotiable Instruments Act, 1881 was amended in the year 1988, revising the rate of interest as contained in Sections 80 and 117, from 6 per cent to 18 per cent per annum payable on negotiable instruments from the due date in case no rate of interest is specified, or payable to an endorser from the date of payment on a negotiable instrument on its dishonour with a view to discourage the withholding of payment on negotiable instruments on due dates. Penalties in case of dishonour of cheques Chapter XVII of the Negotiable Instruments Act provides for penalties in case of dishonour of certain cheques for insufficiencies of funds in the accounts. Sections 138 to 142 deal with these aspects. The provisions contained in this Chapter provide that where any cheque drawn by a person for discharge of any liability is returned by the bank unpaid for the reason of insufficiency of the amount of money standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds the arrangement made by the drawer of the cheque with the banker for that account, the drawer of such cheque shall be deemed to have committed an offence. In that case, the drawer, without prejudice to the-6fher provisions of the Act, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both. In order to constitute the said offence (a) such cheque should have been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; and (b) the payee or holder in due course of such cheque should have made a demand for the payment of the said amount of money by giving notice, in writing, to the drawer of the cheque within fifteen days of the receipt of information by him from the bank regarding the return of the cheque unpaid; and (c) the drawer of such cheque should have failed to make the payment of the said amount of money to the payee or the holder in due course of the cheque within fifteen days of the receipt of the said notice. It has also been provided that it shall be presumed, unless the contrary is proved, that the holder of such cheque received the cheque in the discharge of a liability. Defences which mayor
may not be allowed in any prosecution for such offence have also been provided to make the provisions effective. The Supreme Court in Modi Cements Ltd. v. K.K. Nandi, (1988) 28 CLA 491, held that merely' because the drawer issued a notice to the drawee or to the Bank for 'stop payment', it would not preclude an action under Section 138 by the drawee or holder in due course. Usual provisions relating to offences by companies have also been included in the said new Chapter. In order to ensure that genuine and h9nest bank customers are not harassed or put to inconvenience, sufficient safeguard's have also been provided in the new Chapter, as under: (a) That no Court shall take cognizance of such offence except on a complaint in writing, made by the payee or the holder in due course of the cheque; (b) That such complaint is made within one month or the date on which the cause of action arises; (c) That QO Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any such offence. Section 4 - Promissory note[6] A ―promissory note‖ is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Section 5 - Bill of exchange[7] A ―bill of exchange‖ is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A promise or order to pay is not ―conditional‖, within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain. The sum payable may be ―certain‖, within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due. The person to whom it is clear that the direction is given or that payment is to be made may be a ―certain person‖, within the meaning of this section and section 4, although he is mis-named or designated by description only. Section 6 - Cheque[8] A cheque is bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Explanation: I. - For the purposes of this section, the expressions(a) a cheque in the electronic form means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system; (b) a truncated cheque means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.
Explanation II - For the purposes of this section, the expression clearing house means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India. Section 13 - Negotiable Instruments[9] (1) Negotiable instrument. A Negotiable Instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. Explanation (i).-A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Explanation (ii).-A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. Explanation (iii).-Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option. (2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or -some of several payees. Section 123 - Cheque Crossed Generally[9] Where a cheque bears across its face an addition of the words and company or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words, not negotiable, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally. Section 124 - Cheque crossed specially[3] Where a cheque bears across its face an addition of the name of a banker, either with or without the words not negotiable, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker. Section 126 Cheque crossed specially[9] Where a cheque is crossed generally, the banker, on whom it is drawn shall not pay it otherwise than to a banker. Payment of cheque crossed specially. - Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent, for collection. Section 130 Cheque bearing Not Negotiable A person taking a cheque crossed generally or specially, bearing in either case the words not negotiable, shall not have, and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had. Five Ingredients of the offence under Section 138 t is manifest that to constitute an offence under Section 138 of the Act, the following ingredients are required to be fulfilled: 1. a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account 2. The cheque should have been issued for the discharge, in whole or in part, of any debt or other liability; 3. that cheque has been presented to bank within a period of three months from the date on which it is drawn or within the period of its validity whichever is earlier;
4. that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank; 5. the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; 6. the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 30 days of the receipt of the said notice; SALE OF GOODS ACT -1930 This Act may be called the Sale of Goods Act, 1930. It extends to the whole of India (except the State of Jammu and Kashmir). It shall come into force on the 1st day of July, 1930 Definitions .- In this Act, unless there is anything repugnant in the subject of content(1) ‗buyer" means a person who buys or agrees to buy goods, (2) "delivery" means voluntary transfer of possession from one person to another. Applications of provisions of Act 9 of 1882.- The unrevealed provisions of the Indian Contract Act, 1872 save insofar as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts for sale of goods. Formation of the Contract Sale and agreement to sell.(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional (3) Where under a contract of sale the property in the goods in transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Contract of Sale how made -. (1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed. (2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties. Existing or future goods.(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods. (2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen. (3) Where by a contract of sale the seller purports to effect a present sale of future goods, the
contract operates as an agreement to sell the goods. Goods perishing before making of contract.- Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract. Goods perishing before sale but after agreement to sell.- Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the ag reement before the risk passes to the buyer, the agreement is thereby avoided. Ascertainment of price.(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. Agreement to sell at valuation.(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation, the agreement is thereby avoided. Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall pay a reasonable price therefore (2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault. Stipulations as to time.- Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulations as to time is of the essence of the contract or not depends on the terms of the contract. Condition and warranty.(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. (2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to right to treat the contract as repudiated. (3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. (4) Whether a stipulation in a contract of sale is condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the When condition to be treated as warranty.1) Where a contract of sale is subject to any condition to the fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for relating the contract as repudiated. (2) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated,
unless there is a term of the contract, express or implied, to that effect. (3) Nothing in this section shall affect the case of any condition or warranty fulfilment of which is excused by law by reason of impossibility of otherwise. Implied undertaking as to tile, etc.- In a contract of sale, unless the circumstances of the contract are such as to show a different intention there is(a) an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. (b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods. (c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made. Sale by description.- Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description, and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. Implied condition as to quality or fitness.- Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, excepts as follows:(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller‘s skill or judgement, and the goods are of a description which it is in the course of the seller‘s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose. Provided that, in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied conditions to its fitness for any particular purpose. (2) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality. Provided that, if the buyer has examined the goods, there shall be no implied conditions as regards defects which such examination ought to have revealed. (3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. (4) An express warranty or conditions does not negative a warranty or condition implied by this Act unless inconsistent therewith. Sale by sample.(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. (2) In the case of a contract for sale by sample there is an implied condition (a) that the bulk shall corresponded with the sample in quality. (b) that the shall have a reasonable opportunity of comparing the bulk with the sample. (c) that the goods shall be free from any defect, rendering them un-merchantable, which would not be apparent on reasonable examination of the Effects of the Contract Goods must be ascertained.- Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are sanctioned.
Property passes when intended to pass.- (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in Section 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Specific goods in a deliverable state.- Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. Specific goods to be put into a deliverable state.- Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price.- Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. Sale of unascertained goods and appropriation.- (1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made. (2) Delivery to carrier.- Where, in pursuance of the contract, the seller delivers the goods Goods sect on approval or „on sale or return‟- when goods are delivered to the buyer on approval or on sale or return or other similar terms, the property therein passes to the buyer(a) when he signifies his approval or acceptance to the seller to does not other act adopting the transaction. (b) if he does not signify his approval or acceptance to the seller but retains the gods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if not time has been fixed, on the expiration of a reasonable time. Reservation of right of disposal.- (1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or to a carrier or
other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of landing or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. (3) Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading or, as the may be, the railway receipt, to secure acceptance to payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange, and, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him. Explanation.- In this section, the expression "Railway" and "Railway administration" shall have the meanings respectively assigned to them under the Indian Railways Act, 1890. Risk Prima facie passes with property.- Unless otherwise agreed, the goods remain at the seller‘s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer‘s risk whether delivery has been made or not. Provided that, where deliver has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault. Provides also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the goods of the other party. Sale by person not the owner.- Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by conduct precluded from denying the seller‘s authority to sell. Provided that, where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same, provided that the buyer act is good faith and has not at the time of the contract of sale notice that the seller has not authority to sell. Sale by one of joint owners.- If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods in transferred to any person how buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has not authority to sell. Sale by person in possession under voidable contract.- When the seller of gods has obtained possession thereof under a contract voidable under Section 19 or Section 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale, the buyer acquires a god title to the goods, provided he buys them in good faith and without notice of the seller‘s defect of title. Seller or buyer in possession after sale.- (1) Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer
by that person or by a mercantile agent acting for him of the gods or documents of title under any sale, pledge o other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery to transfer were expressly authorised by the owner of the gods to make the same. (2) Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of tile under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the gods shall have effect as if such lien or right did not exist. Performance of the Contract Duties of seller and buyer.- It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. Payment and delivery are concurrent conditions.- Unless otherwise agreed, delivery of the gods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods. Delivery.- Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf. Effect of part delivery.- A delivery of part of goods, in progress of the delivery of the whole has the same effect, for the purpose of passing the property in such goods, as a delivery of the whole, but a delivery of part of the gods, with an intention of severing it from the whole, does not operate as a delivery of the remainder. Buyer to apply for delivery.- Apart from any express contract, the seller of goods in not bound to deliver them until the buyer applies for delivery. Rules as to delivery.- (1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, if not then in existence, at the place at which they are manufactured or produced. (2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. (3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title to goods. (4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expense of and incidental to putting the goods into a deliverable state shall be borne by the seller. Delivery of wrong quantity.- (1) Where the seller delivers to the buyer a quantity of good less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate. (2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell the buyer may accept the goods included in the contact and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate. (3) Where the seller delivers to the buyer the gods he contract to sell mixed with goods of a different description not included in the contract., the buyer may accept the goods which are in accordance with the contract and reject the rest, or may reject the whole. (4) The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties. Installment deliveries.- (1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments. (2) Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, and the seller makes no delivery or defective delivery in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each cased depending on the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract, or whether it is a severable breach giving rise to a claim for compensation, but not a right to treat the whole contract as repudiated. Delivery to carrier or wharfinger.- (1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to he buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer. (2) Unless otherwise authorised by the buyer, the seller shall makes such contract with the carrier or wharfinger on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in course of transit or whilst in the custody of the wharfinger, the buyer made decline to treat the delivery to the carrier or wharfinger as a delivery to himself, or may hold the seller responsible in damages. (3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit and if the seller fails so to do, the
goods shall be deemed to be at his risk during such sea transit. Risk where goods are delivered at distant place.- Where the seller of goods agrees to deliver them at his own risk at place other than that where they are when sold, the buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit. Buyer‟s right of examining the goods.- (1) Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract. (2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract, Buyer not bound to return rejected goods.- Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient it he intimates to the seller that he refuses to accept them. Buyer not bound to return rejected goods.- Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is he intimates to the seller that he intimates to the seller that he refuses to accept them. Liability of buyer for neglecting or refusing delivery of goods.- When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods , he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery and also for a reasonable charge for the care and custody of the goods. Provided that nothing in this section shall affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract. Rights of unpaid seller against the goods "Unpaid seller" defined.- (1) The seller of goods is deemed to be an "unpaid seller" within the meaning of this Act(a) When the whole of the price has not been paid or tendered. (b) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the conditions on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. (2) In this Chapter, the term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price. Unpaid seller‟s rights.- (1) Subject to the provisions of this Act and of any law for the for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law. (a) a lien on the goods for the period while he is in possession of them, (b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them.
(c) a right of re-sale as limited by this Act. (2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer. What is Intellectual Property? Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Intellectual property relates to items of information or knowledge, which can be incorporated in tangible objects at the same time in an unlimited number of copies at different locations anywhere in the world. The property is not in those copies but in the information or knowledge reflected in them. Intellectual property rights are also characterized by certain limitations, such as limited duration in the case of copyright and patents. Countries generally have laws to protect intellectual property for two main reasons. One is to give statutory expression to the moral and economic rights of creators in their creations and to the rights of the public in accessing those creations. The second is to promote creativity, and the dissemination and application of its results, and to encourage fair trade, which would contribute to economic and social development. IP is divided into two categories: Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs. The innovations and creative expressions of indigenous and local communities are also IP, yet because they are ―traditional‖ they may not be fully protected by existing IP systems. Access to, and equitable benefit-sharing in, genetic resources also raise IP questions. The Two Branches of Intellectual Property: Industrial Property and Copyright Intellectual property is usually divided into two branches, namely industrial property, which broadly speaking protects inventions, and copyright, which protects literary and artistic works. Industrial property takes a range of forms. These include patents to protect inventions, and industrial designs, which are aesthetic creations determining the appearance of industrial products. Industrial property also covers trademarks, service marks, layout-designs of integrated circuits, commercial names and designations, as well as geographical indications, and protection against unfair competition. Copyright relates to artistic creations, such as books, music, paintings and sculptures, films and technology-based works such as computer programs and electronic databases. In most European languages other than English, copyright is known as author‘s rights. The expression copyright refers to the main act which, in respect of literary and artistic creations, may be made only by the author or with his authorization. That act is the making of copies of the work. The expression author’s rights refers to the creator of the artistic work, its author. It thus underlines the fact, recognized in most laws, that the author has certain specific rights in his creation which only he can exercise (such as the right to prevent a distorted reproduction). Other rights (such as the right to make copies) can be exercised by other persons, for example, a publisher who has obtained a license from the author.
While other types of intellectual property also exist, it is helpful for present purposes to explore the distinction between industrial property and copyright in terms of the basic difference between inventions and literary and artistic works. Inventions may be defined in a non-legal sense as new solutions to technical problems. These new solutions are ideas, and are protected as such; protection of inventions under patent law does not require that the invention be represented in a physical embodiment. The protection accorded to inventors is, therefore, protection against any use of the invention without the authorization of the owner. Even a person who later makes the same invention independently, without copying or even being aware of the first inventor‘s work, must obtain authorization before he can exploit it. Unlike protection of inventions, copyright law protects only the form of expression of ideas, not the ideas themselves. The creativity protected by copyright law is creativity in the choice and arrangement of words, musical notes, colors and shapes. So copyright law protects the owner of property rights against those who copy or otherwise take and use the form in which the original work was expressed by the author. From this basic difference between inventions and literary and artistic works, it follows that the legal protection provided to each also differs. Since protection for inventions gives a monopoly right to exploit an idea, such protection is short in duration- usually about 20 years. The fact that the invention is protected must also be made known to the public. There must be an official notification that a specific, fully described invention is the property of a specific owner for a fixed number of years; in other words, the protected invention must be disclosed publicly in an official register. Since the legal protection of literary and artistic works under copyright, by contrast, prevents only unauthorized use of the expressions of ideas, the duration of protection can be much longer than in the case of the protection of ideas themselves, without damage to the public interest. Also, the law can be - and in most countries is - simply declaratory, i.e., the law may state that the author of an original work has the right to prevent other persons from copying or otherwise using his work. So a created work is considered protected as soon as it exists, and a public register of copyright protected works is not necessary. Works Protected by Copyright For the purposes of copyright protection, the term ―literary and artistic works‖ is understood to include every original work of authorship, irrespective of its literary or artistic merit. The ideas in the work do not need to be original, but the form of expression must be an original creation of the author. The Berne Convention for the Protection of Literary and Artistic Works (Article 2) states: ―The expression ‗literary and artistic works‘ shall include every production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression‖. The Convention goes on to list the following examples of such works: books, pamphlets and other writings; lectures, addresses, sermons; dramatic or dramatico-musical works; choreographic works and entertainments in dumb show; musical compositions with or without words; cinematographic works to which are assimilated works expressed by a process analogous to cinematography; works of drawing, painting, architecture, sculpture, engraving and lithography; photographic works, to which are assimilated works expressed by a process analogous to photography;
works of applied art; illustrations, maps, plans, sketches and three-dimensional works relative to geography, topography, architecture or science; ―translations, adaptations, arrangements of music and other alterations of a literary or artistic work, which are to be protected as original works without prejudice to the copyright in the original work.. collections of literary or artistic works such as encyclopaedias and anthologies which, by reason of the selection and arrangement of their contents, constitute intellectual creations, are to be protected as such, without prejudice to the copyright in each of the works forming part of such collections.‖ Member countries of the Berne Union, and many other countries, provide protection under their copyright laws for the above categories of works. The list, however, is not intended to be exhaustive. Copyright laws also protect other modes or forms of expression of works in the literary, scientific and artistic domain, which are not included in the list. Computer programs are a good example of a type of work which is not included in the list in the Berne Convention, but which is undoubtedly included in the notion of a production in the literary, scientific and artistic domain within the meaning of Article 2. Indeed, computer programs are protected under the copyright laws of a number of countries, as well as under the WIPO Copyright Treaty (1996). A computer program is a set of instructions, which controls the operations of a computer in order to enable it to perform a specific task, such as the storage and retrieval of information. The program is produced by one or more human authors, but in its final ―mode or form of expression,‖ it can be understood directly only by a machine (the computer), not by humans. Multimedia productions are another example of a type of work not listed in the Berne Convention, but which clearly comes within the notion of creations in the literary, scientific and artistic domain. While no acceptable legal definition has been developed, there is a consensus that the combination of sound, text and images in a digital format, which is made accessible by a computer program, embodies an original expression of authorship sufficient to justify the protection of multimedia productions under the umbrella of copyright. Rights Protected The most important feature of any kind of property is that the owner may use it exclusively, i.e., as he wishes, and that nobody else can lawfully use it without his authorization. This does not, of course, mean that he can use it regardless of the legally recognized rights and interests of other members of society. Similarly the owner of copyright in a protected work may use the work as he wishes, and may prevent others from using it without his authorization. The rights granted under national laws to the owner of copyright in a protected work are normally exclusive rights to authorize a third party to use the work, subject to the legally recognized rights and interests of others. There are two types of rights under copyright. Economic rights allow the rights owner to derive financial reward from the use of his works by others. Moral rights allow the author to take certain actions to preserve the personal link between himself and the work. Most copyright laws state that the author or rights owner has the right to authorize or prevent certain acts in relation to a work. The rights owner of a work can prohibit or authorize: its reproduction in various forms, such as printed publications or sound recordings; the distribution of copies; its public performance; its broadcasting or other communication to the public; its translation into other languages; its adaptation, such as a novel into a screenplay.
These rights are explained in more detail in the following paragraphs. Reproduction, distribution and related rights The right of the copyright owner to prevent others from making copies of his works without his authorization is the most basic right protected by copyright legislation. The right to control the act of reproduction – be it the reproduction of books by a publisher, or the manufacture by a record producer of compact discs containing recorded performances of musical works - is the legal basis for many forms of exploitation of protected works. Other rights are recognized in national laws in order to ensure that this basic right of reproduction is respected. Many laws include a right specifically to authorize distribution of copies of works. Obviously, the right of reproduction would be of little economic value if the owner of copyright could not authorize the distribution of the copies made with his consent. The right of distribution usually terminates upon first sale or transfer of ownership of a particular copy. This means, for example, that when the copyright owner of a book sells or otherwise transfers ownership of a copy of the book, the owner of that copy may give the book away or even resell it without the copyright owner‘s further permission. Another right which is achieving increasingly wide recognition, and is included in the WIPO Copyright Treaty, is the right to authorize rental of copies of certain categories of works, such as musical works in sound recordings, audiovisual works, and computer programs. This became necessary in order to prevent abuse of the copyright owner‘s right of reproduction when technological advances made it easy for rental shop customers to copy such works. Finally, some copyright laws include a right to control importation of copies as a means to prevent erosion of the principle of territoriality of copyright; that is, the legitimate economic interests of the copyright owner would be endangered if he could not exercise the rights of reproduction and distribution on a territorial basis. Certain forms of reproduction of a work are exceptions to the general rule, because they do not require the authorization of the rights owner. These exceptions are known as limitations on rights (see page…). An area of current debate relates to the scope of one particular limitation traditionally present in copyright laws, which allows individuals to make single copies of works for private, personal and non-commercial purposes. The continued justification for such a limitation on the right of reproduction is being questioned now that digital technology has made it possible to produce high-quality, unauthorized copies of works, which are virtually indistinguishable from the source - and thus a perfect substitute for the purchase of authorized copies. Rights of public performance, broadcasting and communication to the public, and making available to the public. A public performance is considered under many national laws to include any performance of a work at a place where the public is or can be present; or at a place not open to the public, but where a substantial number of persons outside the normal circle of a family and its close acquaintances is present. The right of public performance entitles the author or other copyright owner to authorize live performances of a work, such as a play in a theater, or an orchestra performance of a symphony in a concert hall. Public performance also includes performance by means of recordings. Thus a musical work is considered publicly performed when a sound recording of that work, or phonogram, is played over amplification equipment, for example in a discotheque, airplane, or shopping mall. The right of broadcasting covers the transmission for public reception of sounds, or of images and sounds, by wireless means, whether by radio, television, or satellite. When a work is communicated to the public, a signal is distributed by wire or wireless means, which can be
received only by persons who possess the equipment necessary to decode the signal. Cable transmission is an example of communication to the public. Under the Berne Convention, authors have the exclusive right to authorize public performance, broadcasting and communication of their works to the public. Under some national laws, the exclusive right of the author or other rights owner to authorize broadcasting is replaced, in certain circumstances, by a right to equitable remuneration, although this sort of limitation on the broadcasting right is less and less common. In recent years, the rights of broadcasting, public performance and communication to the public have been the subject of much discussion. New questions have arisen as a result of technological developments, in particular digital technology, which has introduced interactive communications, whereby the user selects which works he wishes to have delivered to his computer. Opinions diverge as to which right should be applied to this activity. The WIPO Copyright Treaty (WCT) (article 8) clarifies that it should be covered by an exclusive right, which the Treaty describes as the authors‘ right to authorize making their works available to the public ―in such a way that members of the public can access these works from a place and at a time individually chosen by them‖. Most national laws implement this right as a part of the right of communication to the public, although some do so as part of the right of distribution. Translation and adaptation rights The acts of translating or adapting a work protected by copyright also require authorization from the rights owner. Translation means the expression of a work in a language other than that of the original version. Adaptation is generally understood as the modification of a work to create another work, for example adapting a novel to make a film; or the modification of a work for different conditions of exploitation, e.g., by adapting a textbook originally written for university students to make it suitable for a lower level. Translations and adaptations are themselves works protected by copyright. So in order to publish a translation or adaptation, authorization must be obtained both from the owner of the copyright in the original work and from the owner of copyright in the translation or adaptation. The scope of the right of adaptation has been the subject of significant discussion in recent years because of the greatly increased possibilities for adapting and transforming works which are embodied in digital format. With digital technology, manipulation of text, sound and images by the user is quick and easy. Discussions have focused on the appropriate balance between the rights of the author to control the integrity of the work by authorizing modifications, and the rights of users to make changes which seem to be part of a normal use of works in digital format. Moral rights The Berne Convention (Article 6bis) requires Member countries to grant to authors: (i) the right to claim authorship of the work (sometimes called the right of paternity); and (ii) the right to object to any distortion or modification of the work, or other derogatory action in relation to the work, which would be prejudicial to the author‘s honor or reputation (sometimes called the right of integrity). These rights are generally known as the moral rights of authors. The Convention requires them to be independent of the author‘s economic rights, and to remain with the author even after he has transferred his economic rights. It is worth noting that moral rights are only accorded to individual authors. Thus even when, for example, a film producer or a publisher owns the economic rights in a work, it is only the individual creator who has moral interests at stake. Limitations on Rights
The first limitation is the exclusion from copyright protection of certain categories of works. In some countries, works are excluded from protection if they are not fixed in tangible form. For example, a work of choreography would only be protected once the movements were written down in dance notation or recorded on videotape. In certain countries, the texts of laws, court and administrative decisions are excluded from copyright protection. The second category of limitations concerns particular acts of exploitation, normally requiring the authorization of the rights owner, which may, under circumstances specified in the law, be carried out without authorization. There are two basic types of limitations in this category: (a) free use, which carries no obligation to compensate the rights owner for the use of his work without authorization; and (b) non-voluntary licenses, which do require that compensation be paid to the rights owner for non-authorized exploitation. Examples of free use include: quoting from a protected work, provided that the source of the quotation and the name of the author is mentioned, and that the extent of the quotation is compatible with fair practice; use of works by way of illustration for teaching purposes; and use of works for the purpose of news reporting. In respect of free use for reproduction, the Berne Convention contains a general rule, rather than an explicit limitation. Article 9(2) states that Member States may provide for free reproduction in special cases where the acts do not conflict with normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the author. As noted above, many laws allow for individuals to reproduce a work exclusively for their personal, private and non-commercial use. However, the ease and quality of individual copying made possible by recent technology has led some countries to narrow the scope of such provisions, including through systems which allow certain copying, but incorporate a mechanism for payment to rights owners for the prejudice to their economic interests resulting from the copying. In addition to the specific categories of free use set out in national laws, the laws of some countries recognize the concept known as fair use or fair dealing. This allows use of works without the authorization of the rights owner, taking into account factors such as the nature and purpose of the use, including whether it is for commercial purposes; the nature of the work used; the amount of the work used in relation to the work as a whole; and the likely effect of the use on the potential commercial value of the work. Non-voluntary licenses allow use of works in certain circumstances without the authorization of the owner of rights, but require that compensation be paid in respect of the use. Such licenses are called non-voluntary because they are allowed in the law, and do not result from the exercise of the exclusive right of the copyright owner to authorize particular acts. Nonvoluntary licenses were usually created in circumstances where a new technology for the dissemination of works to the public had emerged, and where the national legislator feared that rights owners would prevent the development of the new technology by refusing to authorize use of works. This was true of two non-voluntary licenses recognized in the Berne Convention, which allow the mechanical reproduction of musical works and broadcasting. The justification for non-voluntary licenses is, however, increasingly called into question, since effective alternatives now exist for making works available to the public based on authorizations given by the rights owners, including in the form of collective administration of rights. Duration of Copyright Copyright does not continue indefinitely. The law provides for a period of time during which the rights of the copyright owner exist. The period or duration of copyright begins from the moment when the work has been created, or, under some national laws, when it has been
expressed in a tangible form. It continues, in general, until sometime after the death of the author. The purpose of this provision in the law is to enable the author‘s successors to benefit economically from exploitation of the work after the author‘s death. In countries party to the Berne Convention, and in many other countries, the duration of copyright provided for by national law is as a general rule the life of the author plus not less than 50 years after his death. The Berne Convention also establishes periods of protection for works such as anonymous, posthumous and cinematographic works, where it is not possible to base duration on the life of an individual author. There is a trend in a number of countries toward lengthening the duration of copyright. The European Union, the United States of America and several others have extended the term of copyright to 70 years after the death of the author. Ownership, Exercise and Transfer of Copyright The owner of copyright in a work is generally, at least in the first instance, the person who created the work, i.e. the author of the work. But this is not always the case. The Berne Convention (Article 14bis) contains rules for determining initial ownership of rights in cinematographic works. Certain national laws also provide that, when a work is created by an author who is employed for the purpose of creating that work, then the employer, not the author, is the owner of the copyright in the work. As noted above, however, moral rights always belong to the individual author of the work, whoever the owner of economic rights may be. The laws of many countries provide that the initial rights owner in a work may transfer all economic rights to a third party. (Moral rights, being personal to the author, can never be transferred). Authors may sell the rights to their works to individuals or companies best able to market the works, in return for payment. These payments are often made dependent on the actual use of the work, and are then referred to as royalties. Transfers of copyright may take one of two forms: assignments and licenses. Under an assignment, the rights owner transfers the right to authorize or prohibit certain acts covered by one, several, or all rights under copyright. An assignment is a transfer of a property right. So if all rights are assigned, the person to whom the rights were assigned becomes the new owner of copyright. In some countries, an assignment of copyright is not legally possible, and only licensing is allowed. Licensing means that the owner of the copyright retains ownership but authorizes a third party to carry out certain acts covered by his economic rights, generally for a specific period of time and for a specific purpose. For example, the author of a novel may grant a license to a publisher to make and distribute copies of his work. At the same time, he may grant a license to a film producer to make a film based on the novel. Licenses may be exclusive, where the copyright owner agrees not to authorize any other party to carry out the licensed acts; or nonexclusive, which means that the copyright owner may authorize others to carry out the same acts. A license, unlike an assignment, does not generally convey the right to authorize others to carry out acts covered by economic rights. Licensing may also take the form of collective administration of rights. Under collective administration, authors and other rights owners grant exclusive licenses to a single entity, which acts on their behalf to grant authorizations, to collect and distribute remuneration, to prevent and detect infringement of rights, and to seek remedies for infringement. An advantage for authors in collective administration lies in the fact that, with multiple possibilities for unauthorized use of works resulting from new technologies, a single body can ensure that mass uses take place on the basis of authorizations which are easily obtainable from a central source.
A rights owner may also abandon the exercise of the rights, wholly or partially. The owner may, for example, post copyright protected material on the Internet and leave it free for anybody to use, or may restrict the abandonment to noncommercial use. Some very impressive cooperation projects have been organized on a model where contributors abandon certain rights as described in the licensing terms adopted for the project, such as the General Public License (GPL). They thereby leave their contributions free for others to use and to adapt, but with the condition that the subsequent users also adhere to the terms of the license. Such projects, including the open source movement, which specializes in creating computer programs, also build their business models on the existence of copyright protection, because otherwise they could not impose an obligation on subsequent users. Enforcement of Rights The Berne Convention contains very few provisions concerning enforcement of rights, but the evolution of new national and international enforcement standards has been dramatic in recent years due to two principal factors. The first concerns advances in the technological means for creation and use (both authorized and unauthorized) of protected material. Digital technology in particular makes it easy to transmit and make perfect copies of any information existing in digital form, including copyright-protected works. The second factor is the increasing economic importance in the realm of international trade of the movement of goods and services protected by intellectual property rights. Simply put, trade in products embodying intellectual property rights is now a booming, worldwide business. This is acknowledged in the WIPO Copyright Treaty (WCT), which requires Contracting Parties to ensure that enforcement procedures are available under their law so as to permit effective action against any infringement of rights covered by the Treaty, including remedies to prevent or deter further infringements. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which contains more detailed provisions on the enforcement of rights, is ample evidence of this new link between intellectual property and trade. The following paragraphs identify and summarize some of the enforcement provisions found in recent national legislation. They may be divided into the following categories: conservatory or provisional measures; civil remedies; criminal sanctions; measures to be taken at the border; and measures, remedies and sanctions against abuses in respect of technical devices. Conservatory or provisional measures have two purposes: first, to prevent infringements from occurring, in particular to prevent the entry of infringing goods into the channels of commerce, including entry of imported goods after clearance by customs; and second, to preserve relevant evidence in regard to an alleged infringement. Thus, judicial authorities may have the authority to order that provisional measures be enacted without advance notice to the alleged infringer. In this way, the alleged infringer is prevented from relocating the goods to avoid detection. The most common provisional measure is a search of the premises of the alleged infringer and seizure of suspected infringing goods, the equipment used to manufacture them, and all relevant documents and other records of the alleged infringing business activities. Civil remedies compensate the rights owner for economic injury suffered because of the infringement, usually in the form of pecuniary damages, and create an effective deterrent to further infringement. This is often in the form of a judicial order to destroy the infringing goods and the materials which have been predominantly used for producing them. If there is a danger that infringing acts may be continued, the court may also issue injunctions against such acts, failure to comply with which would subject the infringer to payment of a fine. Criminal sanctions are intended to punish those who willfully commit acts of piracy on a commercial scale and, as in the case of civil remedies, to deter further infringement. The purpose of punishment is served by substantial fines, and by prison sentences consistent with
the level of penalties applied for crimes of corresponding seriousness, particularly for repeat offenses. The purpose of deterrence is served by orders for the seizure and destruction of infringing goods, and of the materials and equipment used predominantly to commit the offense. Measures to be taken at the border are different from the enforcement measures described so far, in that they involve action by the customs authorities rather than by the judicial authorities. Border measures allow the rights owner to request that customs authorities suspend the release into circulation of goods that are suspected of infringing copyright. This is intended to give the rights owner a reasonable time to commence judicial proceedings against the suspected infringer, without the risk that the alleged infringing goods will disappear into circulation after customs clearance. The rights owner must (a) satisfy the customs authorities that there is prima facie evidence of infringement, (b) provide a detailed description of the goods so that they can be recognized and (c) provide a security to indemnify the importer, the owner of the goods, and the customs authorities in case the goods turn out to be non-infringing. The final category of enforcement provisions, which has achieved greater importance since the advent of digital technology, includes measures, remedies and sanctions against abuses in respect of technical means. In certain cases, the only practical means of preventing copying is through so-called copy-protection or copy-management systems. These use technical devices, which either entirely prevent copying, or make the quality of the copies so poor as to be unusable. Technical means are also used to prevent the reception of encrypted commercial television programs except with use of decoders. However, it is technically possible to manufacture devices to circumvent such copy-protection and encryption systems. The enforcement provisions are intended to prevent the manufacture, importation and distribution of such devices. Provisions to this effect are included in the WCT. So too are provisions to prevent the unauthorized removal or alteration of electronic rights management information, and the dissemination of copies of works from which such information has been removed. Such information may identify the author or rights owner, or contain information about the terms and conditions of use of the work. Removing it may result in the distortion of computerized rights management or fee-distribution systems. Related Rights The purpose of related rights is to protect the legal interests of certain persons and legal entities who contribute to making works available to the public; or who produce subject matter which, while not qualifying as works under the copyright systems of all countries, contain sufficient creativity or technical and organizational skill to justify recognition of a copyrightlike property right. The law of related rights deems that the productions which result from the activities of such persons and entities merit legal protection in themselves, as they are related to the protection of works of authorship under copyright. Some laws make clear, however, that the exercise of related rights should leave intact, and in no way affect, the protection of copyright. Traditionally, related rights have been granted to three categories of beneficiaries: performers, producers of phonograms and broadcasting organizations. The rights of performers are recognized because their creative intervention is necessary to give life to, for example, motion pictures or musical, dramatic and choreographic works; and because they have a justifiable interest in legal protection of their individual interpretations.
The rights of producers of phonograms are recognized because their creative, financial and organizational resources are necessary to make sound recordings available to the public in the form of commercial phonograms; and because of their legitimate interest in having the legal resources to take action against unauthorized uses, be this the making and distribution of unauthorized copies (piracy), or the unauthorized broadcasting or communication to the public of their phonograms. Likewise, the rights of broadcasting organizations are recognized because of their role in making works available to the public, and in light of their justified interest in controlling the transmission and retransmission of their broadcasts. Treaties. The first organized international response to the need for legal protection of the three categories of related rights beneficiaries was the conclusion, in 1961 of the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (Rome Convention). Unlike most international conventions, which follow in the wake of national legislation and are intended to synthesize existing laws, the Rome Convention was an attempt to establish international regulations in a new field where few national laws existed at the time. This meant that most States had to draft and enact laws before adhering to the Convention. Today, it is a widespread view that the Rome Convention is out-of-date and in need of revision or replacement by a new set of norms in the field of related rights, even though it was the basis for inclusion of provisions on the rights of performers, producers of phonograms, and broadcasting organizations in the TRIPS Agreement. (The levels of protection are similar, but not the same). For two of the categories of beneficiaries, up-to-date protection is now provided by the WIPO Performances and Phonograms Treaty (WPPT), which was adopted in 1996, together with the WCT. Work on a new, separate treaty on the rights of broadcasters continues at WIPO. The rights granted to the three beneficiaries of related rights in national laws are as follows (although not all rights may be granted in the same law): Performers are provided the rights to prevent fixation (recording), broadcasting and communication to the public of their live performances without their consent, and the right to prevent reproduction of fixations of their performances under certain circumstances. The rights in respect of broadcasting and communication to the public may be in the form of equitable remuneration rather than a right to prevent. Due to the personal nature of their creations, some national laws also grant performers moral rights, which may be exercised to prevent unauthorized uses of their name and image, or modifications to their performances which present them in an unfavorable light. Producers of phonograms are granted the rights to authorize or prohibit reproduction, importation and distribution of their phonograms and copies thereof, and the right to equitable remuneration for broadcasting and communication to the public of phonograms. Broadcasting organizations are provided the rights to authorize or prohibit re-broadcasting, fixation and reproduction of their broadcasts. Under some laws, additional rights are granted. For example, in a growing number of countries, producers of phonograms and performers are granted a right of rental in respect of phonograms (audiovisual works in respect of performers), and some countries grant specific rights over cable transmissions. Likewise under the WPPT, producers of phonograms (as well as any other right holders in phonograms under national law) are granted a right of rental. As in the case of copyright, the Rome Convention and national laws contain limitations on rights. These allow use of protected performances, phonograms, and broadcasts, for example, for teaching, scientific research, or private use, and use of short excerpts for reporting current
events. Some countries allow the same kinds of limitations on related rights as their laws provide in connection with copyright, including the possibility of non-voluntary licenses. Under the WPPT, however, such limitations and exceptions must be restricted to certain special cases, which do not conflict with the normal use of the performances of phonograms, and which do not unreasonably prejudice the legitimate interests of the performers or producers. The duration of protection of related rights under the Rome Convention is 20 years from the end of the year (a) that the recording is made, in the case of phonograms and performances included in phonograms; or (b) that the performance took place, in the case of performances not incorporated in phonograms; or (c) that the broadcast took place, for broadcasts. In the TRIPS Agreement and the WPPT, however, the rights of performers and producers of phonograms are to be protected for 50 years from the date of the fixation or the performance. Under the TRIPS agreement, the rights of broadcasting organizations are to be protected for 20 years from the date of the broadcast. Thus many national laws which protect related rights grant a longer term than the minimum contained in the Rome Convention. In terms of enforcement, remedies for infringement or violation of related rights are, in general, similar to those available to copyright owners as described above, namely, conservatory or provisional measures; civil remedies; criminal sanctions; measures to be taken at the border; and measures, remedies and sanctions against abuses in respect of technical devices and rights management information. Finally, mention should be made of the relationship between the protection of related rights and the interests of developing countries. The largely unwritten and unrecorded cultural expression of many developing countries, generally known as folklore or traditional cultural expressions, may be protected under related rights as performances, since it is often through the intervention of performers that they are communicated to the public. By providing related rights protection, developing countries may also provide a means for protection of the vast, ancient and invaluable cultural expression, which is the essence of what distinguishes each culture. Likewise, protecting producers of phonograms and broadcasting organizations helps to establish the foundation for national industries capable of disseminating national cultural expression within the country and, perhaps more important, in markets outside it. The current popularity of what is called world music demonstrates that such markets exist. But the economic benefits from do not always return to the country where the cultural expressions originated. In sum, protection of related rights serves the twin objectives of preserving national culture and providing a means for commercial exploitation of international markets. The interest of developing countries in the protection of related rights goes beyond the protection of traditional cultural expressions and into the realm of international trade and development. Today, the extent to which a country protects intellectual property rights is inextricably linked to the potential for that country to benefit from the rapidly expanding international trade in goods and services protected by such rights. For example, the convergence of telecommunications and computer infrastructures will lead to international investment in many sectors of developing country economies, including intellectual property, and those countries which lack political commitment to the protection of intellectual property rights will be left out of the frame. Protection of related rights has thus become part of a much larger picture. It is a necessary precondition for participation in the emerging system of international trade and investment that will characterize the 21st century. Patents A patent grants an inventor exclusive rights to make, use, sell, and import an invention for a limited period of time, in exchange for the public disclosure of the invention. An invention is a solution to a specific technological problem, which may be a product or a process. Patents
protect an invention from being made, sold or used by others for a certain period of time. There are three different types of patents in the United States: Utility patients- these patents protect inventions that have a specific function, including things like chemicals, machines, and technology. Design patientsthese patents protect the unique way a manufactured object appears. Plant patients- these patents protect plant varieties that are asexually reproduced, including hybrids. Inventors may not assume that their creation is patented unless they apply and are approved for a patent by the US Patent and Trademark Office. This process can be complex and time consuming. It is a good idea to hire an intellectual property attorney to make sure you file the appropriate paperwork and get the patent you need to protect your invention and make it profitable. Copyright A copyright gives the creator of an original work exclusive rights to it, usually for a limited time. Copyright may apply to a wide range of creative, intellectual, or artistic forms, or "works".[14][15] Copyright does not cover ideas and information themselves, only the form or manner in which they are expressed. Copyrights protect the expressive arts. They give owners exclusive rights to reproduce their work, publicly display or perform their work, and create derivative works. Additionally, owners are given economic rights to financially benefit from their work and prohibit others from doing so without their permission. It is important to realize that copyrights do not protect ideas, only how they're expressed. Industrial design rights An industrial design right protects the visual design of objects that are not purely utilitarian. An industrial design consists of the creation of a shape, configuration or composition of pattern or color, or combination of pattern and color in three dimensional form containing aesthetic value. An industrial design can be a two- or three-dimensional pattern used to produce a product, industrial commodity or handicraft. Trademarks A trademark is a recognizable sign, design or expression which identifies products or services of a particular source from those of others. Trademarks protect the names and identifying marks of products and companies. The purpose of trademarks is to make it easy for consumers to distinguish competitors from each other. Trademarks are automatically assumed once a business begins using a certain mark to identify its company, and may use the symbol TM without filing their symbol or name with the government. There are strict laws in place to protect intellectual property rights. When intellectual property rights are violated, it is important to hire an intellectual property lawyer. An experienced attorney can help you sue for damages that include lost royalties. If your case is successful, the person who violated your intellectual property rights may be required to pay for all of your legal fees in addition to compensating you for using your work without your permission. Shortcomings of intellectual property laws Although intellectual property laws are associated with many benefits, important imitations of such laws have been identified by critics in recent times. One important shortcoming is the fact that because many patents, especially ones related to pharmacy and healthcare, are held developed and rich nations, access for poorer nations which are in most need of these products is restricted because of financial constraints. Other critics contend that intellectual property laws place restrictions on people and prevent them from naturally creative process. Types of intellectual properties and differences between each type The three main types of intellectual property are patents, copyrights and trademarks. Each of these types has a distinct purpose and must not be confused with the others. It is, therefore, very important for someone
looking to register his or her intellectual property to be clear about the differences between each type and know exactly what to apply for. Patents are, basically, used to protect enhancements to existing inventions or completely new inventions. Copyrights are used to protect creative works of literature, music and other related fields and finally, trademarks are generally phrases, words, patterns or designs used by brands to market their products and that have become an important part of the identity of their products.
